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entitled 'Troubled Asset Relief Program: Treasury Sees Some Returns as
It Exits Programs and Continues to Fund Mortgage Programs' which was
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United States Government Accountability Office:
GAO:
Report to Congressional Addresses:
January 2013:
Troubled Asset Relief Program:
Treasury Sees Some Returns as It Exits Programs and Continues to Fund
Mortgage Programs:
GAO-13-192:
GAO Highlights:
Highlights of GAO-13-192, a report to congressional addressees.
Why GAO Did This Study:
The Emergency Economic Stabilization Act of 2008 authorized Treasury
to create TARP, a $700 billion program designed to restore liquidity
and stability to the financial system and to preserve homeownership by
assisting borrowers struggling to make their mortgage payments. The
act also required that GAO report every 60 days on TARP activities in
the financial and mortgage sectors. This report examines the condition
and status of (1) nonmortgage-related TARP programs and (2) TARP-
funded mortgage programs and Treasury’s efforts to better ensure that
servicers are implementing as intended two new requirements designed
to improve interactions with borrowers (the MHA single point of
contact and resolution of escalated cases requirements). To do this
work, GAO analyzed audited financial data for various TARP programs;
reviewed documentation such as program terms and agency reports on
TARP programs; and interviewed Office of Financial Stability officials.
Treasury generally agreed with the findings. Treasury, Ally Financial,
and General Motors provided technical comments that GAO incorporated,
as appropriate.
What GAO Found:
As of September 30, 2012, the Department of the Treasury (Treasury)
was managing assets totaling $63.2 billion in nonmortgage-related
Troubled Asset Relief Programs (TARP) (see figure). As of this date,
Treasury had exited 4 of the 10 nonmortgage-related programs, and in
December 2012 Treasury announced the exit from a fifth program—the
American International Group (AIG) Investment Program. Exactly when
Treasury will exit the remaining five programs remains uncertain.
Treasury has identified several factors that will affect its
decisions. For example,
* for the Capital Purchase Program (CPP, created to provide capital to
financial institutions), the financial condition of the participating
institutions and the success of auctions;
* for the Community Development Capital Initiative (CDCI, created to
provide capital to credit unions and financial institutions in
underserved communities), which Treasury has not yet decided to exit,
the financial condition of the participating institutions and the rate
at which the institutions repay Treasury; and;
* for the Automotive Industry Financing Program (AIFP, created to
prevent a significant disruption of the American automotive industry).
Some programs, such as CPP, have yielded returns that exceed the
original investments. Others, such as CDCI and AIFP, have not.
Unlike the nonmortgage-related TARP programs, TARP-funded mortgage
programs, which focus on mitigating foreclosures, are ongoing, and
Treasury’s oversight of new requirements designed to improve servicers’
interactions with borrowers showed both challenges and improvements.
Treasury allocated $45.6 billion in TARP funds to three programs,
including Making Home Affordable (MHA), but more than $40 billion of
the funding has not yet been disbursed, and the programs have not
reached the expected number of borrowers. The centerpiece of MHA is
the Home Affordable Modification Program, which has provided about 1.1
million permanent modifications to borrowers. To help ensure that
homeowners receive appropriate assistance from servicers under this
and other MHA programs, since September 2011 Treasury has required
servicers to identify a “relationship manager” to serve as the
homeowner’s single point of contact throughout a delinquency or
imminent default resolution process. GAO found that Treasury’s initial
reviews of servicers’ implementation of this requirement had
identified some inconsistencies. However, oversight of a second
requirement designed to improve the resolution of borrower inquiries
and disputes (escalated cases) showed that the nine largest servicers
had met the performance target. Treasury officials said that the MHA
program administrator, Fannie Mae, handled oversight of the escalation
process and the vendors who supported in keeping with Treasury’s
guidelines.
Table: Status of Programs, as of September 30, 2012:
Non-mortgage-related programs with outstanding assets:
Program: Capital Purchase Program (CPP): To provide capital to viable
banks through the purchase of preferred shares and subordinated
debentures;
Amounts:
Outstanding assets: $8.7 billion;
Disbursed: $204.9 billion.
Program: Community Development Capital Initiative Program: To provide
capital to credit unions and financial institutions in underserved
communities;
Amounts:
Outstanding assets: $0.6 billion;
Disbursed: $0.6 billion.
Program: Automotive Industry Financing Program (AIFP): To prevent a
significant disruption of the American automotive industry;
Amounts:
Outstanding assets: $37.3 billion;
Disbursed: $79.7 billion.
Program: AIG Investment Program: To provide stability in financial
markets and avoid disruptions to the markets from the deterioration of
AIG's financial condition;
Amounts: On December 14, 2012, Treasury announced that it had received
payment from its final sale of AIG stock, bringing to an end the
government's assistance to the company.
Program: Public-Private Investment Program: To address the challenge
of "legacy assets" by partnering with investors to purchase certain
residential and commercial mortgage-backed securities;
Amounts:
Outstanding assets: $9.8 billion;
Disbursed: $18.6 billion.
Program: Term Asset-backed Securities Loan Facility: To provide
liquidity in securitization markets for various asset classes to
improve access to credit for consumers and businesses;
Amounts:
Outstanding assets: $0.1 billion;
Disbursed: $0.1 billion.
Non-mortgage programs Treasury has exited:
Program: SBA 7(a) Program: To alleviate liquidity strains in secondary
markets for SBA 7(a) loans. Treasury purchased 31 SBA 7(a) securities
between March and September 2010[A];
Lifetime income: $0.004 billion.
Program: Asset Guarantee Program (AGP): To provide federal government
assurances for assets held b financial institutions that were viewed
as critical to the functioning of the nation's financial system[B];
Lifetime income: $3.9 billion.
Program: Targeted Investment Program (TIP): To foster market stability
and strengthen the economy by making investments on a case-by-case
basis in institutions that Treasury deemed critical to the functioning
of the financial system;
Lifetime income: $4.0 billion.
Program: Capital Assessment Program (CAP): Created to provide capital
to institutions not able to raise it privately to meet Supervisory
Capital Assessment Program (SCAP)--or "stress test"--requirements.
This program was never used.
Lifetime income: N/A.
TARP-funded mortgage programs: To offer assistance to homeowners at
risk of foreclosure[C].
Payments: $5.5 billion;
Authorized: $45.6 billion.
Source: GAO analysis of Treasury data.
Notes: The September 30, 2012, data are audited numbers from
Treasury’s financial statements. Outstanding assets are presented at
book value.
[A] The SBA 7(a) program is SBA’s primary program for helping small
businesses obtain access to credit when they cannot obtain it from
private lending institutions. The program provides credit for working
capital and other business needs.
[B] Treasury no longer holds assets for this program that it must
manage, though the Federal Deposit Insurance Corporation still holds
Citigroup trust preferred stock and Treasury could receive income when
these assets are sold.
[C] TARP-funded mortgage programs include a variety of programs to
assist homeowners. Unlike the investment programs, these programs do
not hold assets to manage and sell and thus have no outstanding assets.
[End of table]
View [hyperlink, http://www.gao.gov/products/GAO-13-192] or key
components. For more information, contact Thomas J. McCool at (202)
512-2642 or mccoolt@gao.gov.
[End of section]
Contents:
Letter:
Background:
Most Nonmortgage-Related Programs Continue to Wind Down:
Mortgage Programs Remain Active, and Oversight Has Shown Both
Challenges and Improvements:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Treasury's Termination of the TARP Small Business
Administration 7(a) Securities Purchase Program:
Appendix III: Treasury's Office of Financial Stability Staffing and
Use of Private Sector Contracting:
Appendix IV: Comments from the Department of the Treasury:
Appendix V: GAO Contacts and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Programs Supported by TARP Funding and Their Estimated
Lifetime Income (Cost) as of September 30, 2012:
Table 2: Treasury Offerings of Its AIG Common Stock Holdings, May 2011
to December 2012:
Table 3: Cumulative Value of Contracts and Financial Agency Agreements
in Support of TARP:
Figures:
Figure 1: Timeline for Recent Major Events from TARP's Implementation
and Unwinding, October 3, 2008, through September 10, 2012:
Figure 2: Status of CPP, as of September 30, 2012:
Figure 3: Status of Institutions That Received CPP Investments, as of
September 30, 2012:
Figure 4: Number of Institutions Missing Scheduled Dividend or
Interest Payments, by Quarter, as of August 31, 2012:
Figure 5: Status of CDCI, as of September 30, 2012:
Figure 6: Status of AIFP, as of September 30, 2012:
Figure 7: GM's Share Price, November 18, 2010, through December 18,
2012:
Figure 8: Status of TALF, as of September 30, 2012:
Figure 9: Status of PPIP, as of September 30, 2012:
Figure 10: HAMP Modifications Started Monthly, January 2010 through
September 2012:
Figure 11: Status of Mortgage Programs as of September 2012:
Figure 12: Status of SBA 7(a) Securities Purchase Program, as of
September 30, 2012:
Figure 13: OFS Employees and Detailees, November 21, 2008, through
September 30, 2012:
Abbreviations:
ABS: asset-backed securities:
AIFP: Automotive Industry Financing Program:
AGP: Asset Guarantee Program:
AIG: American International Group, Inc.
CAP: Capital Assessment Program:
CDCI: Community Development Capital Initiative:
CDFI: Community Development Financial Institutions:
CMBS: commercial mortgage-backed securities:
CPP: Capital Purchase Program:
Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection
Act:
EBIT: earnings before interest and tax:
EESA: Emergency Economic Stabilization Act:
Federal Reserve: Board of Governors of the Federal Reserve System:
FDIC: Federal Deposit Insurance Corporation:
FRBNY: Federal Reserve Bank of New York:
FHA: Federal Housing Administration:
FHA Short Refinance or FHASR: FHA Refinance of Borrowers in Negative
Equity Positions:
GM: General Motors:
GMAC: General Motors Acceptance Corporation:
HAFA: Home Affordable Foreclosure Alternatives:
HAMP: Home Affordable Modification Program:
Hardest Hit Fund or HHF: Housing Finance Agency Innovation Fund for
the Hardest Hit Housing Markets:
HUD: Department of Housing and Urban Development:
IPO: initial public offering:
MHA: Making Home Affordable:
OFS: Office of Financial Stability:
PPIF: public-private investment fund:
PPIP: Public-Private Investment Program:
PRA: Principal Reduction Alternative:
RD: Rural Development:
RHS: Department of Agriculture's Rural Housing Service:
RMBS: residential mortgage-backed securities:
SBA: Small Business Administration:
SBLF: Small Business Lending Fund:
TALF: Term Asset-backed Securities Loan Facility:
TARP: Troubled Asset Relief Program:
TIP: Targeted Investment Program:
Treasury: Department of the Treasury:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
January 7, 2013:
Congressional Addressees:
The Emergency Economic Stabilization Act of 2008 (EESA) initially
authorized $700 billion to assist financial institutions and markets,
businesses, homeowners, and consumers through the Troubled Asset
Relief Program (TARP).[Footnote 1] This amount was intended to provide
confidence that the U.S. government would help address the greatest
threat the financial markets and economy had faced since the Great
Depression. As the severity and immediacy of the 2008 financial crisis
began to diminish, Congress reduced the authorized amount to $475
billion as part of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act).[Footnote 2]
TARP costs were not estimated to reach the authorized amounts, and
over time the projected costs have declined as financial institutions
repay some assistance and other programs move closer to their
termination dates.[Footnote 3] However, a number of banks that
received investments under the Capital Purchase Program (CPP), the
largest TARP program, have missed dividend or interest payments
related to their government assistance, although the number of banks
remaining in the program has decreased. TARP-funded housing programs
also continue their expenditures in an effort to address the ongoing
foreclosure crisis.
The Department of the Treasury (Treasury) is the primary agency
implementing TARP, and it has undertaken a broad range of activities.
Treasury established the Office of Financial Stability (OFS) to carry
out TARP activities, which have included injecting capital into key
financial institutions, implementing programs to address problems in
the securitization markets, providing assistance to the automobile
industry, and offering incentives for modifying residential mortgages,
among other activities.
As required by EESA, we have provided oversight of TARP activities
since they began in 2008. This 60-day report assesses the condition of
TARP as of September 30, 2012.[Footnote 4] Specifically, it examines
the condition and status of (1) nonmortgage-related TARP programs; and
(2) TARP mortgage programs, including Treasury's efforts to ensure
that servicers are implementing two requirements. These requirements
are establishing a single point of contact for each borrower and
following procedures for resolving disputed cases that are "escalated"
or referred for review.
To assess the condition and status of nonmortgage-related TARP
programs, we collected and analyzed data about program utilization and
assets held, as applicable, focusing primarily on financial
information that we had audited in the Office of Financial Stability's
(OFS) financial statements, as of September 30, 2012. In some
instances we provided more recent, unaudited financial information.
[Footnote 5] The financial information includes the types of assets
held in the program, obligations that represent the highest amount
ever obligated for a program, disbursements, and income. Further, we
reviewed Treasury documentation such as program terms, press releases,
and reports on TARP programs and costs. Also, we interviewed OFS
program officials to determine the current status of each TARP
program, the role of TARP staff, and exit considerations for TARP
programs. To assess the condition and status of TARP-funded mortgage
programs and Treasury's efforts to ensure that servicers were
implementing the single point of contact requirement and procedures
for resolving escalated cases, we analyzed Treasury's public reports
and statements; reviewed internal Treasury documentation; and
interviewed OFS officials. For both objectives, we also leveraged our
past reporting on TARP, as well as that of the Special Inspector
General for TARP, as appropriate. Unless otherwise noted, we provide
financial information about the TARP programs throughout this report
as of September 30, 2012. Appendix I contains additional information
about our scope and methodology.
We conducted this performance audit from September 2012 to January
2013 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
Background:
When EESA was enacted on October 3, 2008, the U.S. financial system
was facing a severe crisis that rippled throughout the global economy,
moving from the U.S. housing market to an array of financial assets
and interbank lending. The crisis restricted access to credit and made
the financing on which businesses and individuals depended
increasingly difficult to obtain. Further tightening of credit
exacerbated a global economic slowdown. During the crisis, Congress,
the President, federal regulators, and others undertook a number of
steps to facilitate financial intermediation by banks and the
securities markets. In addition to Treasury's efforts, policy
interventions were led by the Board of Governors of the Federal
Reserve System (Federal Reserve) and the Federal Deposit Insurance
Corporation. While the banking crisis in the United States no longer
presents the same level of systemic concerns as it did in 2008, the
financial system continues to face vulnerabilities, including lagging
investor confidence, financial concerns about European banks and
countries, and generally weak economic growth globally.
TARP Programs and Implementation:
The passage of EESA resulted in a variety of programs supported with
TARP funding.[Footnote 6] (See table 1.) Treasury estimates several of
the programs over their lifetimes will provide income to the
government while others will incur a cost. Each program that remained
active through September 30, 2012, will be addressed in this report.
Table 1: Programs Supported by TARP Funding and Their Estimated
Lifetime Income (Cost) as of September 30, 2012:
Program: American International Group, Inc. (AIG) Investment Program
(formerly Systemically Significant Failing Institutions Program);
Program description: Provided support to AIG to avoid disruptions to
financial markets as its financial condition deteriorated;
Lifetime
Income (Cost) Estimate: ($15.3 billion) TARP; $17.6 billion Non-
TARP[A].
Program: Asset Guarantee Program;
Program description: Provided federal
government assurances for assets held by financial institutions that
were viewed as critical to the functioning of the nation's financial
system. Bank of America and Citigroup were the only two institutions
that participated in this program;
Lifetime Income (Cost) Estimate: $3.9 billion.
Program: Automotive Industry Financing Program (AIFP);
Program description: Aimed to prevent a significant disruption of the
American automotive industry through government investments in certain
domestic automakers--Chrysler and General Motors (GM)--and auto
financing companies Ally Financial (formerly known as General Motors
Acceptance Corporation, or GMAC) and Chrysler Financial;
Lifetime Income (Cost) Estimate: ($24.3 billion).
Program: Capital Assessment Program;
Program description: Created to provide capital to institutions not
able to raise it privately to meet Supervisory Capital Assessment
Program--or "stress test"--requirements. This program was never used;
Lifetime Income (Cost) Estimate: N/A.
Program: Capital Purchase Program (CPP);
Program description: The largest TARP program, designed to provide
capital investments to financially viable financial institutions.
Treasury received preferred shares and subordinated debentures, along
with warrants[B];
Lifetime Income (Cost) Estimate: $14.9 billion.
Program: Consumer and Business Lending Initiative programs;
Program description:
* Community Development Capital Initiative (CDCI) provided
capital to Community Development Financial Institutions (CDFI) by
purchasing preferred stock and subordinated debentures[C];
Lifetime Income (Cost) Estimate: ($0.2 billion);
* Small Business Administration (SBA) 7(a) Securities Purchase Program
provided liquidity to secondary markets for government-guaranteed
small business loans in SBA's 7(a) loan program;
Lifetime Income (Cost) Estimate: $0.004 billion;
* Term Asset-backed Securities Loan Facility (TALF) provided liquidity
in securitization markets for various asset classes to improve access
to credit for consumers and businesses;
Lifetime Income (Cost) Estimate: $0.5 billion.
Program: TARP-funded housing programs;
Program description:
* Making Home Affordable includes several housing programs. The
primary program has been the Home Affordable Modification Program
(HAMP), under which Treasury shares the cost of reducing monthly
payments on first lien mortgages with mortgage holders/investors and
provides financial incentives to servicers, borrowers, and mortgage
holders/investors for loans modified under the program[D];
* Hardest Hit Fund seeks to help homeowners in the states hit hardest
by unemployment and house price declines;
* Support for the Department of Housing and Urban Development's
Federal Housing Administration (FHA) Short Refinance program enables
homeowners whose mortgages exceed the value of their homes to
refinance into more affordable mortgages;
Lifetime Income (Cost) Estimate: ($45.6 billion) for all programs.
Program: Public-Private Investment Program (PPIP);
Program description: Created to address the challenge of "legacy
assets" as part of Treasury's efforts to repair balance sheets
throughout the financial system. Treasury partnered with private funds
to purchase residential and commercial mortgage-backed securities;
Lifetime Income (Cost) Estimate: $2.4 billion.
Program: Targeted Investment Program (TIP);
Program description: Sought to foster market stability and strengthen
the economy by making case-by-case investments in institutions that
Treasury deemed critical to the functioning of the financial system.
Bank of America and Citigroup were the only two institutions that
participated in this program;
Lifetime Income (Cost) Estimate: $4.0 billion.
Source: GAO analysis of Treasury data.
Note: The data in this table are as of September 30, 2012, and do not
reflect significant transactions related to AIG, GM, and PPP that
occurred after that date but are discussed later in this report.
[A] In addition to using TARP to support AIG, Treasury also supported
AIG through non-TARP assistance. Treasury received 562,868,096 common
shares outside of TARP from a trust created by the Federal Reserve
Bank of New York for the benefit of the Treasury. The trust exchanged
its AIG Series C preferred shares, for AIG common shares.
[B] A warrant is an option to buy shares of common stock or preferred
stock at a predetermined price on or before a specified date.
[C] CDFIs are financial institutions that provide financing and
related services to communities and populations that lack access to
credit, capital, and financial services.
[D] For more information on additional Making Home Affordable programs
funded through TARP see GAO, Troubled Asset Relief Program: Further
Actions Needed to Enhance Assessments and Transparency of Housing
Programs, GAO-12-783 (Washington, D.C.: July 19, 2012).
[End of table]
Many TARP programs have been winding down, and some have ended.
[Footnote 7] Treasury has stated that when deciding to sell assets and
exit TARP programs, it strives to:
* protect taxpayer investment and maximize overall investment returns
within competing constraints, and promote the stability of financial
markets and the economy by preventing disruptions to the financial
system;
* bolster markets' confidence in order to encourage private capital
investment; and:
* dispose of investments as soon as practicable.
While Treasury has identified these goals for the exit process for
many programs, we and others have noted that these goals, at times,
can conflict.[Footnote 8] For example, we previously reported that
deciding to unwind some of its assistance to General Motors (GM) by
participating in an initial public offering (IPO) presented Treasury
with a conflict between maximizing taxpayer returns and exiting as
soon as practicable. Holding its shares longer could have meant
realizing greater gains for the taxpayer but only if the stock
appreciated in value. By participating in GM's November 2010 IPO,
Treasury tried to fulfill both goals, selling almost half of its
shares at an early opportunity. Treasury officials stated that
although they strove to balance these competing goals, they had no
strict formula for doing so. Rather, they ultimately relied on the
best available information in deciding when to start exiting this
program.
Moreover, in some cases Treasury's ability to exercise control over
the timing of its exit from TARP programs is limited. For example,
Treasury has limited control over its exit from the Public-Private
Investment Program (PPIP), because the program's exit depends on when
each public-private investment fund (PPIF) decides to sell its
investments. Treasury continues to face this tension in its goals with
a number of TARP programs. Figure 1 provides an overview of key dates
for TARP implementation and the unwinding of some programs. In
addition, appendix III provides information on Treasury's
administration of the TARP programs, including an update on the
staffing challenges we have previously reported and Treasury's
reliance on the private sector to assist with TARP administration and
operations.
Figure 1: Timeline for Recent Major Events from TARP's Implementation
and Unwinding, October 3, 2008, through September 10, 2012:
[Refer to PDF for image: timeline]
2008:
10/3: Put L. 110-343: Emergency Economic Stabilization Act (EESA)
enacted, which authorized the Troubled Asset Relief Program (TARP).
10/14:
Treasury announces that it will purchase up to $250 billion in
financial firms' preferred stock via the Capital Purchase Program
(CPP).
11/10:
Treasury announces American International Group, Inc. (AIG) assistance
through the Systemically Significant Failing Institutions (SSFI)
Program.
11/23:
Treasury, the Federal Deposit Insurance Corporation (FDCI), and the
Federal Reserve provide Citigroup assistance through guarantees,
liquidity access, and capital, including an equity investment through
the Targeted Investment Program (TIP).
11/25:
Treasury announces support for the Federal Reserve's Term Asset-backed
Securities Loan Facility (TALF) to assist asset-backed securities.
12/19:
Treasury announces a plan to stabilize the automotive industry under
the Automotive Industry Financing Program (AIFP).
2009:
1/16:
Treasury, the Federal Reserve, and FDIC assist Bank of America through
guarantees, liquidity access, and capital including protection on
certain losses and the purchase of preferred stock under the Targeted
Investment Program.
2/18:
Treasury announces the framework for its Making Home Affordable
Program (MHA).
2/25:
Treasury announces the terms and conditions for the Capital Assessment
Program (CAP).
3/23:
Treasury, FDIC, and the Federal Reserve announce details on the Public-
Private Investment Program (PPIP).
6/17:
Five of the eight largest financial institutions to first participate
in CPP repurchase their preferred stock from Treasury.
10/21:
Treasury' announces new efforts under TARP to assist small businesses
and Community Development Financial Institutions (CDFIs).
11/9:
CAP closes.
12/31:
CPP closes to new investments.
2010:
2/3:
Treasury announces final terms for CDFIs, which increases capital for
lending and expands eligibility.
3/26:
Treasury announces additional mortgage assistance for unemployed
homeowners and those who owe more on their mortgages than their home's
value.
7/21:
Dodd-Frank Act is enacted, which prohibits TARP funds from being
obligated for new programs not initiated prior to June 25 2010, and
Treasury reduces available funds for existing programs.
10/3:
On the second anniversary of EESA, Treasury's authorization to make
new financial commitments for programs under TARP ends.
11/17:
Treasury participates in General Motor's (GM) initial public offering,
reducing its ownership stake in GM.
12/10:
Treasury announces exiting Citigroup assistance with the sale of at
Citigroup common stock.
2011:
1/14:
AIG closes on the restructuring of its assistance from Treasury and
the Federal Reserve Bank of New York so it now takes the form of
common stock and preferred interests.
5/24:
In its first auction of AIG common stock, Treasury sells 200 million
shares of the stock to the public, reducing its remaining equity
interest from approximately 92 percent to approximately 77 percent.
6/2:
Treasury announces the intention to begin the disposition of its Small
Business Administration (SBA) 7(a) securities portfolio and thereafter
commences sales.
7/21:
Treasury sells all of its shares of Chrysler.
2012:
1/25:
Treasury announces the closing of its support for the SBA 7(a) program
with an $8 million gain for taxpayers.
1/27:
Treasury announces the extension of MHA programs through December 31,
2013, the expansion of the Home Affordable Modification Program (HAMP)
to include a second tier of modifications (Tier 2), and the tripling
of incentives for the Principal REduction Alternative.
3/27:
Treasury announces repayment in full of the government's remaining
preferred equity investment in the AIG-owned entity AIA Aurora LLC
(AIA special purpose vehicle that hold ordinary shares in AIA Group
Limited).
5/3:
Treasury announces updated exit strategy for CPP to include focus on
selling remaining assets.
6/1:
Servicers begin evaluating borrowers for HAMP Tier 2 modifications.
8/6:
Treasury sells 188,524,590 shares of its AIG common stock, reducing
its remaining equity in AIG to approximately 53 percent.
9/10:
Treasury agrees to sell 553.8 million shares of AIG common stock at
$32.50 per share to reduce Treasury's remaining stake in AIG to about
21.5 percent and to recoup its investment in AIG.
Source: GAO analysis of Treasury data.
[End of figure]
Most Nonmortgage-Related Programs Continue to Wind Down:
Most nonmortgage-programs continue to wind down, but the status and
potential ending date of each nonmortgage-related TARP program varies.
Key information includes,
* the estimated date, if known, that the program will end or stop
acquiring new assets and no longer receive funding;
* Treasury's estimated date for exiting the program or selling the
assets it acquired while the program was open;
* outstanding assets, as applicable, as of September 30,
2012;[Footnote 9] and:
* the lifetime estimated costs (or income) for each program as
calculated by Treasury.
Institutions' Financial Strength and the Outcomes of Auctions Will
Help Determine When Remaining Participants Exit CPP:
While repayments and income from CPP investments have exceeded the
original outlays, the financial strength of participating institutions
and the outcome of future securities auctions will help determine when
the remaining institutions exit the program. As we have reported,
Treasury disbursed $204.9 billion to 707 financial institutions
nationwide from October 2008 through December 2009.[Footnote 10] As of
September 30, 2012, Treasury had received $219.5 billion in repayments
and income from its CPP investments, exceeding the amount originally
disbursed by $14.6 billion (see figure 2). The repayment and income
amount included $193.2 billion in repayments of original CPP
investments, as well as $11.8 billion in dividends, interest, and
fees; $7.7 billion in warrant income; and $6.9 billion in net proceeds
in excess of costs. After accounting for write-offs and realized
losses on sales totaling $3.0 billion, CPP had $8.7 billion in
outstanding investments as of September 30, 2012. Treasury estimates
lifetime income of $14.9 billion for CPP as of September 30, 2012.
[Footnote 11]
Figure 2: Status of CPP, as of September 30, 2012:
[Refer to PDF for image: illustrated table]
Capital Purchase Program (CPP):
Assets held:
Preferred stock;
Common stock;
Warrants;
Subordinated debt.
Start date: October 2008;
End date: December 2009;
Approximate exit: Unknown.
Status of funding:
Highest ever obligated: $204.9 billion;
Disbursed: $204.9 billion;
Repayments[A]: $193.2 billion;
Write-offs and losses: $3.0 billion;
Outstanding investments: $8.7 billion.
Income:
Dividends/interest income: $11.8 billion;
Warrant income: $7.7 billion;
Proceeds in excess of costs: $6.9 billion;
Total income: $26.4 billion.
Net estimated value of outstanding investments: $5.7 billion.
Estimated lifetime income: $14.9 billion.
Exit considerations:
* The financial strength of CPP participants and the outcome of future
auctions of securities will determine whether and how quickly
institutions can repay and when Treasury can exit.
* The dividend rate for some CPP institutions resets beginning in the
fall of 2013 and could prompt institutions to repay their investments.
* Treasury expects that the sale of investments will be an ongoing
component of the wind down of CPP's bank programs, and the outcome of
this strategy will depend on demand from investors.
* Treasury expects to use pooled auctions for smaller and riskier
investments, whose outcome will also be subject to investor demand.
Source: GAO analysis of Treasury data.
[A] The total amount of repayments includes $363 million from
institutions that transferred to the Community Development Capital
Initiative and $2.2 billion from institutions that transferred to the
Small Business Lending Fund.
[End of figure]
Over half (417) of the 707 institutions that originally participated
in CPP had exited the program as of September 30, 2012.[Footnote 12]
Of the 417 institutions that have exited CPP, about 42 percent, or 175
institutions, exited by repaying their investments.[Footnote 13]
Another 40 percent, or 165 institutions, exited CPP by exchanging
their securities under other federal programs: 28 through TARP's
Community Development Capital Initiative (CDCI) and 137 through the
non-TARP Small Business Lending Fund (SBLF) (see figure 3).[Footnote
14] Of the remaining 18 percent of CPP recipients that exited the
program, 56 had their securities sold by Treasury, 18 went into
bankruptcy or receivership, and 3 merged with another institution.
Figure 3: Status of Institutions That Received CPP Investments, as of
September 30, 2012:
[Refer to PDF for image: pie chart]
Institutions remaining in program: 290;
Investments fully repaid: 175;
Investments refinanced through SBLF or CDCI: 165;
Investments sold to Treasury: 56;
Other: 21.
Source: GAO analysis of Treasury data.
[End of figure]
As of September 30, 2012, much of the $8.7 billion in outstanding
investments was concentrated in a relatively small number of
institutions. The largest single outstanding investment was $967.9
million, and the top three outstanding investments totaled $2.3
billion--27 percent of the amount outstanding. The top 25 remaining
CPP investments accounted for $5.4 billion, or 63 percent of the
outstanding amount. In addition, while 290 of the original 707
institutions remained in CPP, their $8.7 billion in outstanding
investments accounted for just 4 percent of what Treasury originally
disbursed.
However, the number of institutions that have missed payments has been
rising. The cumulative number of financial institutions that had
missed at least one scheduled dividend or interest payment by the end
of the month in which the payments were due rose from 219 as of August
31, 2011, to 242 as of August 31, 2012.[Footnote 15] These 242
institutions represent over one-third of the 707 institutions that
participated in CPP and account for a cumulative total of 1,631 missed
payments.[Footnote 16] As of August 31, 2012, 208 institutions had
missed three or more payments and 142 had missed six or more. The
total amount of missed dividend and interest payments was $376
million, although some of these payments were later made prior to the
end of the reporting month. On a quarterly basis, the number of
institutions missing dividend or interest payments due on their CPP
investments increased steadily from 8 in February 2009 to 150 in
August 2012, or about half of the institutions still in the program
(see figure 4). This increase occurred despite the reduced program
participation, so the proportion of those missing scheduled payments
has risen accordingly.
Figure 4: Number of Institutions Missing Scheduled Dividend or
Interest Payments, by Quarter, as of August 31, 2012:
[Refer to PDF for image: multiple line graph]
Date: February 2009;
Missed Payments: 8;
Institutions: 467.
Date: May 2009;
Missed Payments: 18;
Institutions: 593.
Date: August 2009;
Missed Payments: 34;
Institutions: 637.
Date: November 2009;
Missed Payments: 54;
Institutions: 645.
Date: February 2010;
Missed Payments: 79;
Institutions: 645.
Date: May 2010;
Missed Payments: 97;
Institutions: 636.
Date: August 2010;
Missed Payments: 123;
Institutions: 616.
Date: November 2010;
Missed Payments: 132;
Institutions: 586.
Date: February 2011;
Missed Payments: 152;
Institutions: 562.
Date: May 2011;
Missed Payments: 156;
Institutions: 543.
Date: August 2011;
Missed Payments: 159;
Institutions: 464.
Date: November 2011;
Missed Payments: 158;
Institutions: 379.
Date: February 2012;
Missed Payments: 158;
Institutions: 363.
Date: May 2012;
Missed Payments: 153;
Institutions: 343.
Date: August 2012;
Missed Payments: 150;
Institutions: 300.
Source: GAO analysis of Treasury data.
Note: Dividend and interest payments are due on a quarterly basis. The
number of participating institutions on any given quarter did not
reach 707 (i.e., the total number of institutions that participated in
CPP) because these institutions entered and exited the programs at
different points in time. Also, 300 institutions remained in CPP as of
August 31, 2012, but as of September 30, 2012, that number had
decreased to 290.
[End of figure]
The number of institutions missing payments has stabilized in recent
quarters, but most of the institutions with missed payments had missed
them repeatedly. In particular, 133 of the 150 institutions that
missed payments in August 2012 had also missed payments in each of the
previous three quarters. Moreover, these 150 institutions had missed
an average of 7.3 additional previous payments, while 4 had never
missed a previous payment. Institutions can elect whether to pay
dividends and may choose not to pay for a variety of reasons,
including decisions that they or their federal and state regulators
make to conserve cash and maintain (or increase) capital levels.
Institutions are required to pay dividends only if they declare
dividends, although unpaid cumulative dividends generally accrue and
the institution must pay them before making payments to other types of
shareholders, such as holders of common stock.
In May 2012, Treasury announced a strategy to wind down its remaining
investments. The strategy includes three options that the department
says will protect taxpayer interests, promote financial stability, and
preserve the strength of the nation's community banks. These options
include allowing banks to repurchase or restructure their investments
or selling Treasury-held stock through public auctions. In considering
these options, Treasury will need to balance the goals of protecting
taxpayer-supported investments while expeditiously unwinding the
program. Treasury officials said that they would continue to evaluate
the CPP exit strategy, but added that they expected to continue using
these options for the foreseeable future.
The first option allows banks, with the approval of their regulators,
to repurchase from Treasury their preferred shares in full. Treasury
points out that this strategy has been used since 2009 and is one it
expects some banks to continue to use through late 2013. Under this
option, Treasury's ability to exit the program largely depends on the
ability of institutions to repay their investments. Institutions will
have to demonstrate that they are financially strong enough to repay
the CPP investments in order to receive regulatory approval to exit
the program. Dividend rates will increase from 5 percent to 9 percent
for remaining institutions beginning in late 2013, a development that
may prompt institutions to repay their investments. If broader
interest rates are low, especially approaching the dividend reset,
banks could have further incentive to redeem their preferred shares.
A second option allows banks to restructure their investments, usually
in connection with a merger or a plan to raise new capital. With this
option, Treasury receives cash or other securities that generally can
be sold more easily than preferred stock. Treasury officials said
that, as of early October 2012, approximately 28 restructurings had
occurred. The officials expected a limited number of restructurings to
continue, but added that because Treasury's investments were sometimes
sold at a discount during restructuring, they would approve the sales
only if the terms represented the best deal for taxpayers.
Under the third option, Treasury may sell its preferred stock through
public auctions. Treasury conducted the first such auction of CPP
investments in March 2012 and reported that it generated strong
investor interest. As of September 30, 2012, Treasury had conducted
six auctions resulting in the sale of 40 investments with total net
proceeds of about $1.3 billion. Treasury also reported that this
option can be beneficial for community banks that do not have easy
access to the capital markets, because it could attract new, private
capital to replace the temporary TARP support. Treasury expects this
option to continue to be part of its effort to wind down CPP. Thus
far, Treasury has sold investments individually, but noted that it
might combine other investments, particularly smaller ones, into
pools. Whether Treasury sells stock individually or in pools, the
outcome of this option will depend largely on investor demand for
these securities.
The Financial Strength of CDCI Participants Will Affect When Treasury
Terminates the Program:
Treasury disbursed $570 million to its 84 CDCI participants and
completed funding the program in September 2010 (see figure
5).[Footnote 17] As we previously reported, CDCI is structured much
like CPP, in that it has provided capital to financial institutions by
purchasing equity and subordinated debt from them.[Footnote 18] No
additional funds are available through the program, as CDCI's funding
authority expired in September 2010. As of September 2012, Treasury
expects CDCI will cost approximately $200 million over its lifetime,
less than half of the $570 million obligated to the program. Officials
stated that CDCI will have a lifetime cost, while CPP is estimated to
result in lifetime income, in part because CDCI provides a lower
dividend rate that increases the net financing cost to Treasury. Also,
unlike CPP, the program does not require warrants from participating
institutions that would have helped offset Treasury's costs. As of
September 30, 2012, two CDCI participants have repaid Treasury $2.85
million, and Treasury has received $22 million in dividend payments
from CDCI participants.
Figure 5: Status of CDCI, as of September 30, 2012:
[Refer to PDF for image: illustrated table]
Community Development Capital Initiative (CDCI):
Assets held:
Preferred stock;
Common stock;
Subordinated debt.
Start date: 2010[A];
End date: September 2010;
Approximate exit: Unknown.
Status of funding:
Highest ever obligated: $0.57 billion.
Disbursed: $0.57 billion:
* Exchanges from CPP to CDCI: $0.36 billion;
* Not from exchanges: $0.21 billion.
Outstanding investments: $0.57 billion:
* Exchanges from CPP to CDCI: $0.36 billion;
* Not from exchanges: $0.21 billion.
Income:
Dividend income: $0.02 billion;
Total income: $0.02 billion.
Net estimated value of outstanding investments: $0.40 billion.
Estimated lifetime cost: $0.2 billion.
Exit considerations:
* The low dividend rate extends until 2018 but the program could take
longer to wind down if participants do not repay by that time;
* Treasury currently plans to hold its CDC! investments but could
change that practice in the future, which could affect the timing of
its exit from CDCI.
Source: GAO analysis of Treasury data.
Note: Treasury began holding common stock for CDCI after September 30,
2011.
[A] Treasury first announced CDCI in October 2009. The program first
provided capital to CDFIs in 2010.
[End of figure]
As with CPP, Treasury must continue to monitor the performance of CDCI
participants because their financial strength will affect their
ability to repay Treasury. According to Treasury officials, Treasury
will continue to hold its CDCI investments and has not made any
disposition decisions about the program. However, they said that when
Treasury decides to exit the CDCI program, it will need tools in place
similar to those used by CPP institutions to exit the CPP program. As
of September 30, 2012, 5 of the 84 CDCI participants had missed at
least one dividend or interest payment, and 2 of the participants had
paid accrued and unpaid dividends after missing the initial scheduled
payment date(s), according to Treasury. While the continuing weak
economy could negatively affect distressed communities and the CDFIs
that serve them, the program's low dividend rates may help
participants remain current on payments.
When Treasury will exit CDCI is unknown, but the dividend rate that
program participants pay increases in 2018. However, Treasury
officials noted that the program was intended to be long term and said
that they believed the program was meeting its objective by providing
long-term, low-cost capital. CDCI institutions have an opportunity to
keep CDCI capital in their communities, which are usually moderate and
low income, for a longer time. Treasury officials indicated that, as
with CPP investments, Treasury's current practice was to hold CDCI
investments but that this strategy could change, and Treasury could
opt to sell its CDCI shares.
Competing Goals and Market Conditions Have Affected Treasury's Exit
from GM and Ally:
Since investing roughly $80 billion in the automotive industry, as of
September 30, 2012, Treasury had received more than $40 billion in
proceeds. Nevertheless, Treasury still held substantial investments in
GM and Ally Financial, which included 32 percent of GM's common stock,
74 percent of Ally Financial's common stock, and $5.9 billion of Ally
Financial's mandatory convertible preferred stock (see figure 6).
[Footnote 19]
Figure 6: Status of AIFP, as of September 30, 2012:
[Refer to PDF for image: illustrated table]
Automotive Industry Financing Program (AIFP):
Assets held:
GM: Common stock;
Ally Financial: Common and preferred stock.
Assets sold:
GM: Preferred and common stock and debt obligations;
Ally Financial: Trust preferred securities;
Chrysler: Common stock and debt Obligations;
Chrysler Financial: DEbt obligations.
GM Start date: December 2008;
End date: July 2009;
Approximate exit: Unknown.
Ally Financial Start date: December 2008;
End date: December 2009;
Approximate exit: Unknown.
Chrysler Start date: January 2009;
End date: June 2009;
Approximate exit: July 2011.
Chrysler Financial Start date: January 2009;
End date: January 2009;
Approximate exit: July 2009.
Status of funding:
Highest ever obligated: $85.0 billion.
Disbursed: $79.7 billion:
* GM: $51.0 billion;
* Ally Financial: $16.3 billion;
* Chrysler: $10.9 billion;
* Chrysler Financial: $1.5 billion.
Repayments: $35.2 billion;
* GM: $23.2 billion;
* Ally Financial: $2.5 billion;
* Chrysler: $7.9 billion;
* Chrysler Financial: $1.5 billion.
Wire-offs and losses: $7.4 billion;
* GM: $4.4 billion;
* Ally Financial: $0;
* Chrysler: $2.9 billion;
* Chrysler Financial: $0.
Outstanding investments: $37.3 billion:
* GM: $22.6 billion;
* Ally Financial: $3.0 billion;
* Chrysler: $1.2 billion;
* Chrysler Financial: $0.
Income:
Dividend/interest income: $4.9 billion;
* GM: $0.77 billion;
* Ally Financial: $3.0 billion;
* Chrysler: $1.2 billion;
* Chrysler Financial: $0.01 billion.
Proceeds in excess of cost: $0.73 billion;
* GM: $0.09 billion;
* Ally Financial: $0.13 billion;
* Chrysler: $0.49 billion;
* Chrysler Financial: $0.02 billion.
Total income: $5.7 billion.
Net estimated value of outstanding investments: $17.6 billion;
* GM: $11.4 billion;
* Ally Financial: $6.2 billion;
* Chrysler: $0;
* Chrysler Financial: $0.
Estimated lifetime cost: $24.3 billion.
Exit considerations:
* Market conditions that affect GM and Ally shares.
Source: GAO analysis of Treasury data.
Notes: Numbers may not sum because of rounding. Ally Financial was
formerly known as the General Motors Acceptance Corporation, or GMAC.
The figures in this graphic do not reflect Treasury's December
announcement about its exit plans for its GM investments, which are
discussed in the text of the report.
[End of figure]
Treasury officials told us that they continued to monitor GM's
financial condition as well as overall market and economic conditions
as they developed a divestment strategy for GM. In general, GM's
financial condition has improved since the IPO, but the company
continued to address challenges with its European operations.
Specifically, GM's net income rose 43 percent--from about $6.5 billion
in 2010 to about $9.3 billion in 2011, with the company achieving 11
straight quarters of profitability since its formation in July 2009.
However, the company saw a decline in net income in 2012--from about
$8.5 billion in the first three quarters of 2011 to about $5.1 billion
in the first three quarters of 2012. GM officials reported this
decline was largely due to increased losses in the company's European
Operations, a region where the automotive industry as a whole
struggles. The company continues to post losses in Europe, with
vehicle sales declining 7.4 percent between the first three quarters
of 2011 and the first three quarters of 2012. In contrast, GM's North
American sales increased 3.2 percent over 2011 levels for that same
time period. The company has reported taking actions to help
restructure its European operations and expects financial results to
improve.[Footnote 20]
The company has also recently made a number of other changes in an
effort to improve its financial condition and flexibility. In June
2012, in an effort to de-risk its pension plans and further strengthen
its balance sheet, GM announced that it would provide certain U.S.
salaried retirees with a continued monthly payment administered and
paid by The Prudential Insurance Company of America and others with a
voluntary lump-sum payment option, which it estimated would reduce its
salaried pension obligation by about $29 billion. In November 2012 GM
announced plans for its captive financing subsidiary, GM Financial, to
acquire Ally Financial, Inc.'s International Operations in 14
countries, which the company expects to drive higher vehicle sales in
China, Mexico, Europe and Latin America. Also in November 2012, GM
secured a new $11 billion revolving to help improve GM Financial's
financial flexibility.
In December 2012, two years after the GM IPO, Treasury announced that
it would sell 200 million or 40 percent of its remaining shares in the
company, and intends to sell the other remaining 300.1 million shares
through a pre-arranged written trading plan within the next 12 to 15
months, subject to market conditions. In May 2011, we reported that
GM's share price would have to increase dramatically from current
levels to an average of more than $54 for Treasury to fully recoup its
investment. Because the December 2012 sale price of $27.50 per share
is considerably less than the breakeven level, GM's shares will now
have to increase to roughly $72 per share, or more than double the
average 2012 share price, for Treasury to fully recoup its investment
(see figure 7).[Footnote 21]
Figure 7: GM's Share Price, November 18, 2010, through December 18,
2012:
[Refer to PDF for image: line graph]
Post-IPO share price to fully recoup Treasury's investment: $54;
IPO share price: $33.
GM daily closing share price: (first trading day of each month)
2010:
November 28: $34.19;
December: $34.78.
2011:
January: $37.06;
February: $36.45;
March: $32.95;
April: $32.41;
May: $32.18;
June: $30.23;
July: $30.58;
August: $28.07;
September: $23.03;
October: $19.73;
November: $23.33;
December: $20.96.
2012:
January: $21.05;
February: $24.37;
March: $26.47;
April: $26.76;
May: $23.31;
June: $22.01;
July: $19.57;
August: $19.66;
September: $21.31;
September 28: $22.75.
Source: Yahoofinance.com and GAO analysis.
[End of figure]
In addition to its outstanding investments in GM, Treasury remains
heavily invested in Ally Financial. According to Treasury officials,
the department continues to explore all potential options for
divesting its interest in Ally Financial, including public and private
options such as a possible IPO or selling its equity in a private
transaction. However, since we last reported on Ally Financial the
company has undergone a number of changes that could affect the timing
of Treasury's exit.[Footnote 22] For instance, on May 14, 2012, Ally
Financial's mortgage subsidiary Residential Capital, LLC, and certain
of its subsidiaries, filed for Chapter 11 bankruptcy. The company is
also in the process of selling its international business, which
includes auto finance, insurance, and banking and deposit operations
in Canada, Mexico, Europe, the United Kingdom, China, and South
America. According to Ally Financial, contracts for each of these
countries have been signed, and deal closings are expected to occur in
stages throughout the first half of 2013. Ally Financial reported that
these actions would improve the financial viability of the company and
increase the likelihood of repaying Treasury. Ally's net income for
the first three quarters of 2012 has declined from the same period in
2011--decreasing from a positive $49 million in 2011 to a loss of $204
million in 2012. This loss is primarily attributable to charges
related to the Residential Capital, LLC, bankruptcy filing in the
second quarter of 2012.[Footnote 23]
The challenges facing Ally Financial and reductions in the share
prices of common stock holdings in GM highlight how market conditions
contribute to the risks associated with AIFP and the variability of
lifetime cost estimates. The projected lifetime cost of AIFP has
increased since 2010 and as of September 30, 2012, was estimated at
$24.3 billion--about $700 million more than in September 2011 and
almost $10 billion more than in September 2010. According to Treasury
officials, Treasury continues to balance its goals of exiting as soon
as practicable and maximizing taxpayer returns.
Treasury Sold Its Remaining AIG Shares:
On December 11, 2012, Treasury announced that it agreed to sell all of
its remaining shares of AIG common stock, and on December 14, 2012,
announced that it had received payment from its final sale of AIG
stock, bringing to an end the government's assistance to the company.
Prior to TARP, in September 2008 AIG received assistance in the form
of a loan from the Federal Reserve Bank of New York (FRBNY). In
exchange, AIG provided shares of preferred stock to the AIG Credit
Facility Trust that FRBNY created. These preferred shares were
converted to common stock and then transferred to the Treasury. In
addition to this and other non-TARP support, Treasury provided
assistance to AIG in November 2008 through TARP by purchasing
preferred shares that were also later converted to common stock. In
late January 2011, following the recapitalization of AIG, Treasury
owned 1.655 billion common shares in AIG (1.092 billion TARP and 0.563
billion non-TARP) and a $20.3 billion preferred interest in two
special purpose vehicle subsidiaries of AIG.[Footnote 24]
In May 2011, Treasury began to sell its AIG shares. Since then and
through six offerings, Treasury has sold all of its shares of AIG
common stock, both TARP and non-TARP shares. The shares it sold in May
2011 and March 2012 to the public brought $29 per share; the shares it
sold in May and August of 2012 to the public brought $30.50 per share;
and the shares it sold in September and December 2012 to the public
brought $32.50 per share. The share price, on a weighted average
basis, was $31.18, exceeding Treasury's break-even price of $28.73 per
share on an overall cost basis for both the TARP and non-TARP shares.
[Footnote 25] At an average price of $31.18 per share, the returns
include about $34 billion on the 1.092 billion TARP shares and $17.6
billion on the 563 million non-TARP shares--totaling over $51.6
billion in proceeds. (See table 2.) While it has sold its remaining
AIG common shares, Treasury continues to hold warrants to purchase
approximately 2.7 million shares of AIG common stock.
Table 2: Treasury Offerings of Its AIG Common Stock Holdings, May 2011
to September 2012:
Execution date: 5/24/2011;
Treasury shares sold to the public (includes over allotments sold):
200,000,000;
Treasury shares sold to AIG: [Empty];
Price per share: $29.00;
Proceeds: $5,800,000,000;
Treasury's remaining AIG common shares: 1,455,037,962;
Percent government equity remaining in AIG: 77%.
Execution date: 3/08/2012;
Treasury shares sold to the public (includes over allotments sold):
103,448,276;
Treasury shares sold to AIG: 103,448,276;
Price per share: 29.00;
Proceeds: $6,000,000,008;
Treasury's remaining AIG common shares: 1,248,141,410;
Percent government equity remaining in AIG: 70%.
Execution date: 5/06/2012;
5/07/2012;
Treasury shares sold to the public (includes over allotments sold):
98,360,656;
Treasury shares sold to AIG: 65,573,770;
Price per share: 30.50;
Proceeds: $4,999,999,993;
Treasury's remaining AIG common shares: 1,084,206,984;
Percent government equity remaining in AIG: 63%.
Execution date: 5/07/2012;
Treasury shares sold to the public (includes over allotments sold):
24,590,163[A];
Treasury shares sold to AIG: 0;
Price per share: 30.50;
Proceeds: $749,999,972;
Treasury's remaining AIG common shares: 1,059,616,821;
Percent government equity remaining in AIG: 61%.
Execution dates: 8/03/2012;
Treasury shares sold to the public (includes over allotments sold):
65,573,770;
Treasury shares sold to AIG: 98,360,656;
Price per share: 30.50;
Proceeds: $4,999,999,993;
Treasury's remaining AIG common shares: 895,682,395;
Percent government equity remaining in AIG: [Empty].
Execution dates: 8/06/2012;
Treasury shares sold to the public (includes over allotments sold):
24,590,164[B];
Treasury shares sold to AIG: 0;
Price per share: 30.50;
Proceeds: $750,000,002;
Treasury's remaining AIG common shares: 871,092,231;
Percent government equity remaining in AIG: 53%.
Execution dates: 9/10/2012;
Treasury shares sold to the public (includes over allotments sold):
400,000,000;
Treasury shares sold to AIG: 153,846,153;
Price per share: 32.50;
Proceeds: $17,999,999,973;
Treasury's remaining AIG common shares: 317,246,078;
Percent government equity remaining in AIG: 21.5%.
Execution dates: 9/11/2012;
Treasury shares sold to the public (includes over allotments sold):
83,076,922[C];
Treasury shares sold to AIG: 0;
Price per share: 32.50;
Proceeds: $2,699,999,965;
Treasury's remaining AIG common shares: 234,169,156;
Percent government equity remaining in AIG: 15.9%.
Execution dates: Totals;
Treasury shares sold to the public (includes over allotments sold):
999,639,951;
Treasury shares sold to AIG: 421,228,855;
Proceeds: $43,999,999,906.
Source: GAO analysis of Treasury data.
[A] These additional shares were sold as a result of underwriters
exercising their overallotment option and were sold under the same
prospectus and registration statement as the shares sold on May 6,
2012.
[B] These additional shares were sold as a result of underwriters
exercising their overallotment option and were sold under the same
prospectus and registration statement as the shares sold on August 3,
2012.
[C] These additional shares were sold as a result of underwriters
exercising their overallotment option and were sold under the same
prospectus and registration statement as the shares sold on September
10, 2012.
[D] After the closing of December 11, 2012, offering, Treasury will
continue to hold warrants to purchase approximately 2.7 million shares
of AIG common stock. Proceeds from the sale of these warrants will
provide an additional positive return to taxpayers.
[End of table]
Treasury received approximately $72.8 billion of proceeds and canceled
$2 billion of its commitment, undrawn, on the AIG investments,
exceeding the $69.8 billion total Treasury commitment to assist AIG by
approximately $5 billion. As of December 2012, the total reflected the
$54.3 billion generated on Treasury's common stock sales and AIG
repaid $20.3 billion on the preferred interests in two special purpose
vehicle subsidiaries of AIG. In addition, Treasury said that it
received $930 million in interest and participation rights on the
special purpose vehicle investments. Treasury's returns from selling
common stock have been in addition to those realized by the returns of
other assistance to AIG. With AIG's final repayment of all FRBNY
assistance to the company in 2012, FRBNY had realized returns in the
form of interest, dividends, and fees in excess of the assistance it
provided AIG through a revolving credit facility and several special
purpose vehicles.[Footnote 26]
As of September 30, 2012, prior to the December 2012 sale of AIG
shares. Treasury lowered its expected lifetime cost from $24.3 billion
to $15.3 billion for its TARP shares and increased its expected income
from $12.8 billion to $17.6 billion for its non-TARP shares, changing
what was an expected net estimated cost of $11.5 billion to a net
expected gain of $2.3 billion for assistance to AIG.[Footnote 27]
Treasury Expects Lifetime Income from Term Asset-backed Securities
Loan Facility (TALF) and Plans to Exit the Program by 2015:
The Federal Reserve established TALF in an effort to reopen the
securitization markets and improve access to credit for consumers and
businesses.[Footnote 28] As of September 30, 2012, Treasury is
committed to contributing as much as $1.4 billion to provide credit
protection to FRBNY for TALF loans should borrowers fail to repay and
surrender the asset-backed securities (ABS) or commercial mortgage-
backed securities (CMBS) pledged as collateral.[Footnote 29] To date,
Treasury has disbursed $100 million for start-up costs related to the
FRBNY-established TALF special-purpose vehicle, TALF LLC (see figure
8). TALF LLC receives a portion of the interest income earned on TALF
loans (known as excess interest under the program) that can be used to
purchase any borrower-surrendered collateral from FRBNY.
Figure 8: Status of TALF, as of September 30, 2012:
[Refer to PDF for image: illustrated table]
AIG Investment Program:
Assets held:
AIG preferred interest (in AIA Aurora LLC special purpose vehicle);
AIG Common stock.
Assets sold:
AIG preferred interest (in American Life Insurance Company Holdings
LLC special purpose vehicle).
Start date: November 2008;
End date: N/A;
Approximate exit: December 2012[B].
Status of funding:
Highest ever obligated, TARP (preferred): $69.8 billion.
Disbursed, TARP[A] (preferred): $67.8 billion.
Repayments, TARP Preferred (common): $49.3 billion.
Write-offs and losses (common): $11.7 billion.
Outstanding investments, TARP (common): $6.7 billion.
Income:
Dividend income, TARP (preferred): $0.64 billion;
Other income (preferred): $0.17 billion;
Total income (preferred): $0.81 billion.
Net estimated value of outstanding investments (common): $5.1 billion.
Estimated lifetime cost:
TARP common shares: $15.3 billion.
Estimated lifetime income:
Non-TARP shares: $17.6 billion;
Net incomer: $2.3 billion.
Exit considerations:
* None[B].
Source: GAO analysis of Treasury data.
[A] Although the program was first announced in November 2008, the
first program activity was initiated in March 2009.
[B] The outstanding investments is the $100 million contributed by
Treasury to the TALF special purpose vehicle. The net estimated value
of Treasury's outstanding investments is the projected returns from
the SPV consisting of the $100 million contributed by Treasury to TALF
LLC and the TARP share of the SPV's excess interest as calculated
using Statements of Federal Financial Accounting Standards that are
consistent with the Federal Credit Reform Act (Credit Reform
Accounting).
[End of figure]
FRBNY stopped issuing new TALF loans in 2010.[Footnote 30] Treasury
officials report that FRBNY TALF loan balances, which were $29.7
billion in September 2010, had fallen to $11.3 billion as of September
30, 2011, and to $1.5 billion as of September 26, 2012. Agency
officials also indicated that all TALF loans were current and that
borrowers continued to pay down their loans.
Excess interest in TALF LLC grew by more than 30 percent between
October 2010 and September 2011, rising from $523 million to $685.6
million. Over the next year (September 2011 to September 2012), it
grew to $754.2 million. If the balance of excess interest in TALF LLC
exceeds the value of any surrendered collateral, Treasury may not need
to disburse any additional funds for the program and could instead
realize lifetime income because it will receive 90 percent of funds
remaining in TALF LLC after all obligations are repaid and the program
ends. Further, the equity that borrowers hold in TALF collateral has
grown since TALF loans were first issued.[Footnote 31] As of September
30, 2012, Treasury estimated that TALF would result in a lifetime
income of approximately $517 million. Treasury officials told us in
September 2012 that they did not have any particular concerns about
the CMBS market that would have an effect on current TALF holdings,
and that prices remained strong throughout 2012. Despite these
positive trends, the officials told us that FRBNY and Treasury staff
will continue to monitor market conditions and credit rating agency
actions that could affect TALF assets. As we have previously reported,
market value fluctuations could affect future results.
Treasury expects to exit TALF by 2015, although it does not have
complete control over its exit because its role in TALF is secondary
to that of the Federal Reserve. Treasury models loan repayments using
TALF loan terms and data provided by the Federal Reserve and projects
repayment schedules, collateral cash flows, prepayments, and
performance loss rates. Based on these analyses, Treasury expects that
the last TALF loan will be paid in 2015. No borrowers have surrendered
TALF collateral to date, and all loans are current. However, should
TALF LLC be required to purchase and manage TALF assets, Treasury
could be involved in TALF beyond 2015, as TALF assets may have
maturity dates that extend beyond the loan maturity dates.
The Investment Periods for PPIP Funds Have Terminated, and All PPIF
Funds Have Begun Unwinding:
Treasury created PPIP, partnering with private funds, to purchase
troubled mortgage-related assets from financial institutions. Treasury
provided the PPIFs with equity and loan commitments of approximately
$7.4 billion and $14.7 billion, respectively, but disbursed a total of
$18.6 billion. PPIFs have finished their 3-year investment period,
which started at each fund's inception date. There were nine PPIFs
established through PPIP, the first of which was liquidated in the
first quarter of 2010 and the last terminated in December 2012.
[Footnote 32] PPIFs with terminated investment periods can no longer
draw money from Treasury or make new investments under this authority,
and Treasury has not granted approval for any new draws under the PPIP
program.[Footnote 33] With the investment periods ended, PPIFs must
begin unwinding their positions and completely divest within 5 years,
although Treasury can decide to extend this period for up to 2
additional years for each PPIF. According to Treasury, the PPIF
liquidated in the first quarter of 2010 yielded Treasury a profit of
$20.1 million on its $156.3 million equity investments and the PPIF
whose investment period ended in September 2011 returned all of its
equity proceeds to Treasury and fully wound down its fund. Three
additional PPIFs have returned 100 percent of Treasury and private
investors' equity investments in the fund with equity gains and fully
repaid Treasury's debt. According to Treasury, these three funds have
a small amount of capital remaining to unwind their operations. The
investment periods for the remaining PPIFs have subsequently ended and
thus have begun to unwind.
According to Treasury, as of September 30, 2012, PPIFs had accessed
about 86 percent of the equity and debt available through Treasury and
private investors, and had repaid Treasury a total of $6.7 billion in
debt financing. In addition, since September 30, 2012, Treasury has
received around $5.5 billion of payments under PPIP. As of September
30, 2012, Treasury estimates that PPIP will ultimately result in
lifetime income of about $2.4 billion (see figure 9). As of November
5, 2012, the four PPIFs that have sold all of their remaining
investments and returned substantially all of the proceeds have
generated more than $1.4 billion in realized gains and income on
Treasury's equity and warrant investments. However, according to
Treasury, the ultimate results will depend on a variety of factors,
including when PPIFs choose to divest and the performance of the
assets they hold.
Figure 9: Status of PPIP, as of September 30, 2012:
[Refer to PDF for image: illustrated table]
Public-Private Investment Program (PPIP):
Assets held:
Eligible residential mortgage-backed securities (RMBS) and commercial
mortgage-backed securities (CMBS).
Start date: September 2009[A];
End date: 2012;
Approximate exit: 2017[B].
Status of funding:
Highest ever obligated: $30.3 billion:
Equity: $10.1 billion;
Debt: $20.2 billion.
Disbursed: $18.6 billion:
Equity: $6.2 billion;
Debt: $12.4 billion.
Repayments: $8.8 billion;
Equity: $2.1 billion;
Debt: $6.7 billion.
Outstanding investments: $9.8 billion;
Equity: $4.1 billion;
Debt: $5.7 billion.
Income:
Dividend income, Equity: $1.78 billion;
Interest income, Debt: $0.30 billion;
Proceeds in excess of cost, Debt: $0.31 billion;
Total income, Equity: $2.39 billion.
Net estimated value of outstanding investments: $10.8 billion:
Equity: $5.1 billion;
Debt: $5.7 billion.
Estimated lifetime income: $2.4 billion.
Exit considerations:
* The effects of the market of PPIFs deleveraging at the end of their
investment periods;
* When PPIFs decide to unwind could affect the PPIF exit date.
Status of capital repayments:
Debt financing:
Total approved: $14.2 billion;
$6.7 billion repaid out of $12.4 billion drawdown.
Equity capital:
Total approved: $7.5 billion;
$2.2 billion repaid out of $6.2 billion provided.
Source: GAO analysis of Treasury data.
[A] PPIFs began their investment periods in 2009. The program was first
announced in March 2009.
[B] The stipulated exit date is 2017, though the program could be
extended through 2019.
Note: The figures in this graphic do not reflect the approximately
$5.5 billion of payments under PPIP received after September 30, 2012,
which are discussed in the text of the report.
[End of figure]
Treasury officials said that their role while PPIFs were in their
investment periods was to follow the progress of each PPIF's
investment strategy and the risks and target returns of the
portfolios. In this role, Treasury staff and contractors monitored
compliance with PPIP terms. With the end of the PPIFs' investment
periods, Treasury officials said that Treasury would focus on the
strategies PPIFs used to maintain and ultimately divest themselves of
their portfolios. Also, Treasury officials said that the contractors
hired to provide investment fund consulting and analysis of PPIF
portfolios would continue to provide such services in this
postinvestment period.
Current PPIP terms stipulate an exit by 2017.[Footnote 34] Unlike the
circumstances found in some other TARP programs, Treasury officials do
not face the same consideration of competing goals in exiting the
program because the terms of the program dictate when the PPIFs must
wind down. However, Treasury officials noted that PPIFs can liquidate
at any time before the exit date. Officials also noted that the
program was designed to discourage firms from keeping their
investments outstanding longer than needed by the PPIF fund managers
after the investment period expired, at which time PPIFs would no
longer have access to debt financing from Treasury, unless permitted
by provisions within the loan agreement and approved by Treasury. Now
that the investment periods have terminated, PPIFs must pay down their
Treasury loans and make distributions to their partners as the PPIFs
receive proceeds from RMBS and CMBS payments and dispositions.
Officials noted that this program structure created an incentive for
PPIFs to sell their assets promptly once their access to Treasury
ended. The officials also said that they were not concerned about any
effects of PPIPs' eventual winding down on markets, as the 5-year
period for unwinding would likely mitigate them.
Mortgage Programs Remain Active, and Oversight Has Shown Both
Challenges and Improvements:
To help meet EESA's goals of preventing avoidable foreclosures and
preserving homeownership, Treasury allocated $45.6 billion in TARP
funds to three mortgage programs:
* Making Home Affordable (MHA), which has several components,
including the Home Affordable Modification Program (HAMP);
* Housing Finance Agency Innovation Fund for the Hardest Hit Housing
Markets (Hardest Hit Fund or HHF); and:
* Department of Housing and Urban Development's (HUD) Federal Housing
Administration (FHA) Refinance of Borrowers in Negative Equity
Positions (FHA Short Refinance or FHASR).[Footnote 35]
The bulk of the funds allocated to TARP programs to help distressed
borrowers avoid foreclosure--$40.1 billion--had not yet been disbursed
as of September 30, 2012. The estimated lifetime cost for the mortgage
programs is $45.6 billion. Unlike for the programs discussed
previously, Treasury will continue to disburse TARP funds under the
mortgage programs for several more years. Specifically, homeowners
have until December 31, 2013, to apply for assistance under MHA
programs, and Treasury will continue to pay incentives for up to 5
years after the last permanent modification begins. Treasury's
obligation under FHASR will continue until September 2020. Unlike TARP
expenditures under some other programs, such as those that provided
capital infusions to banks, expenditures under these programs are
generally direct outlays of funds with no provision for repayment.
[Footnote 36]
TARP-Funded Mortgage Programs Continue to Assist Homeowners, but Much
of the Funding Remains Unspent:
The centerpiece of Treasury's MHA program is HAMP, which seeks to help
eligible borrowers facing financial distress avoid foreclosure by
reducing their monthly first-lien mortgage payments to more affordable
levels.[Footnote 37] Treasury announced HAMP (now called HAMP Tier 1)
on February 18, 2009. Generally, HAMP Tier 1 is available to qualified
borrowers who occupy their properties as their primary residences and
whose first-lien mortgage payment is more than 31 percent of their
monthly gross income. Treasury shares with mortgage holders or
investors the cost of lowering borrowers' monthly payments to 31
percent of monthly income for a 5-year period. In an effort to reach
more borrowers, Treasury established HAMP Tier 2, which servicers
began implementing in June 2012. HAMP Tier 2 is available for either
owner-occupied or rental properties, and borrowers' monthly mortgage
payments prior to modification do not have to exceed a specified
threshold. Treasury also provides incentive payments for modifications
under HAMP Tier 1 and HAMP Tier 2 to servicers and investors, and to
borrowers under HAMP Tier 1.
Treasury originally announced that up to 3 million to 4 million
borrowers would be helped under HAMP.[Footnote 38] However, Treasury
reported that through September 2012 only about 1.1 million permanent
modifications had been started.[Footnote 39] Monthly activity peaked
during the early part of 2010 and has experienced a significant
decline, as shown in figure 10. Since June 1, 2010, when Treasury
began requiring all servicers to perform full income verification to
determine a borrower's eligibility for HAMP before offering a trial
modification, the monthly number of new trial modifications reported
by servicers has remained below 40,000. Monthly trial modification
starts during September 2012 were the lowest reported since the
initial roll-out of the program in 2009. Treasury has not yet
published data on the number of trial periods or permanent
modifications started under HAMP Tier 2, according to Treasury
officials.
Figure 10: HAMP Modifications Started Monthly, January 2010 through
September 2012:
[Refer to PDF for image: multiple line graph]
2010:
January;
Trial modifications started: 95,000;
Permanent modifications started: 50,000.
February;
Trial modifications started: 88,000;
Permanent modifications started: 53,000.
March;
Trial modifications started: 70,000;
Permanent modifications started: 61,000.
April;
Trial modifications started: 49,000;
Permanent modifications started: 68,000.
May;
Trial modifications started: 27,000;
Permanent modifications started: 48,000.
June;
Trial modifications started: 22,000;
Permanent modifications started: 51,000.
July;
Trial modifications started: 24,000;
Permanent modifications started: 37,000.
August;
Trial modifications started: 24,000;
Permanent modifications started: 33,000.
September;
Trial modifications started: 31,000;
Permanent modifications started: 28,000.
October;
Trial modifications started: 30,000;
Permanent modifications started: 24,000.
November;
Trial modifications started: 31,000;
Permanent modifications started: 30,000.
December;
Trial modifications started: 35,000;
Permanent modifications started: 30,000.
2011:
January;
Trial modifications started: 26,000;
Permanent modifications started: 28,000.
February;
Trial modifications started: 35,000;
Permanent modifications started: 26,000.
March;
Trial modifications started: 34,000;
Permanent modifications started: 36,000.
April;
Trial modifications started: 33,000;
Permanent modifications started: 29,000.
May;
Trial modifications started: 27,000;
Permanent modifications started: 32,000.
June;
Trial modifications started: 26,000;
Permanent modifications started: 32,000.
July;
Trial modifications started: 23,000;
Permanent modifications started: 28,000.
August;
Trial modifications started: 21,000;
Permanent modifications started: 26,000.
September;
Trial modifications started: 22,000;
Permanent modifications started: 40,000.
October;
Trial modifications started: 17,000;
Permanent modifications started: 26,000.
November;
Trial modifications started: 18,000;
Permanent modifications started: 27,000.
December;
Trial modifications started: 18,000;
Permanent modifications started: 23,000.
2012:
January;
Trial modifications started: 16,000;
Permanent modifications started: 18,000.
February;
Trial modifications started: 17,000;
Permanent modifications started: 23,000.
March;
Trial modifications started: 21,000;
Permanent modifications started: 20,000.
April;
Trial modifications started: 17,000;
Permanent modifications started: 15,000.
May;
Trial modifications started: 18,000;
Permanent modifications started: 17,000.
June;
Trial modifications started: 17,000;
Permanent modifications started: 17,000.
July;
Trial modifications started: 13,000;
Permanent modifications started: 17,000.
August;
Trial modifications started: 12,000;
Permanent modifications started: 17,000.
Source: GAO analysis of Treasury data.
[End of figure]
In addition to HAMP, Treasury has implemented a number of additional
MHA components that use TARP funds to augment or complement the HAMP
first-lien modification program:[Footnote 40]
* Home Affordable Foreclosure Alternatives Program. The Home
Affordable Foreclosure Alternatives Program offers assistance to
homeowners looking to exit their homes through a short sale or deed-in-
lieu of foreclosure. Treasury offers incentives to eligible
homeowners, servicers, and investors under the program. Through
September 2012, servicers reported completing about 74,000 short sales
and 1,900 deeds-in-lieu under the program.
* Home Price Decline Protection Incentives. This program provides
investors with additional incentives to modify loans under HAMP on
properties located in areas where home prices have recently declined
and where investors are concerned that price declines may persist.
Through September 2012, Treasury had paid about $269 million to
investors in program incentives to support the HAMP modification of
more than 154,000 loans.
* Principal Reduction Alternative (PRA). PRA requires servicers to
evaluate the benefit of principal reduction for mortgages that have a
loan-to-value ratio of 115 percent or more and that are not owned or
guaranteed by Fannie Mae or Freddie Mac. Servicers are required to
evaluate homeowners for PRA when evaluating them for a HAMP first-lien
modification but are not required to actually reduce principal as part
of the modification. Through September 2012, servicers reported having
started about 78,000 permanent modifications with principal reductions
under PRA.
* Second Lien Modification Program. The Second Lien Modification
Program provides additional assistance to homeowners receiving a HAMP
first-lien permanent modification who have an eligible second lien
with participating servicers. When a borrower's first lien is modified
under HAMP, participating program servicers must offer to modify the
borrower's eligible second lien according to a defined protocol.
[Footnote 41] This assistance can result in a modification or even
full or partial extinguishment of the second lien. On February 16,
2012, Treasury doubled the amount of incentives provided on second-
lien modifications that included principal reduction and became
effective on or after June 1, 2012. Through September 2012, servicers
reported starting about 97,000 second-lien modifications, of which
about 24,000 fully extinguished the second lien.
* Government-insured or guaranteed loans (FHA-HAMP and RD-HAMP). FHA
and the Department of Agriculture's Rural Housing Service (RHS) have
implemented modification programs similar to HAMP Tier 1 for FHA-
insured and RHS-guaranteed first-lien mortgage loans. Each of these
programs results in loan modifications that provide borrowers with an
affordable monthly mortgage payment equal to 31 percent of the
homeowners' monthly gross income and requires borrowers to complete a
trial payment plan before permanent modification. If a modified FHA-
insured or RHS-guaranteed mortgage loan meets Treasury's eligibility
criteria, the borrower and servicer can receive TARP-funded incentive
payments from Treasury. Treasury reported that there were nearly 9,100
permanent modifications started that received Treasury FHA-HAMP
incentives through September 2012. According to Treasury officials,
servicers had reported only 11 modifications that qualified for Rural
Development (RD)-HAMP incentives as of September 30, 2012.
* Treasury/FHA Second Lien Program (FHA2LP). Under this program,
Treasury provides incentive payments to servicers and investors if
they partially or fully extinguish second liens associated with an FHA
Short Refinance. Servicers can receive a one-time payment of $500 for
each second lien extinguished under the program, and investors are
eligible for incentive payments based on the amount of principal
extinguished. According to Treasury, no second liens had been
extinguished and no incentive payments made under the Treasury/FHA
Second Lien Program as of September 30, 2012.
Treasury obligated $29.9 billion to MHA, of which nearly $4.0 billion
had been disbursed as of September 2012 (see figure 11). Treasury
estimated that an additional $6.5 billion could be spent on incentives
for HAMP modifications and other MHA interventions that were already
in effect as of September 2012, assuming none of these modifications
default. After combining these potential incentive payments with
incentives already paid, Treasury estimated that $19.4 billion of the
$29.9 billion remain available for future modifications and other
interventions.
Figure 11: Status of Mortgage Programs as of September 2012:
[Refer to PDF for image: illustrated table]
TARP Mortgage Programs:
Making Homes Affordable (MHA):
Start date: March 2009;
End date: Mid-2018[A].
Hardest-Hit Fund (HHF):
Start date: February 2010;
End date: December 2017.
FHA Short Refinance (FHASR):
Start date: September 2010;
End date: September 2020.
Status of funding:
Highest ever obligated: $45.6 billion:
MHA: $29.9 billion;
HHF: $7.6 billion;
FHASR: $8.1 billion.
Payments: $5.5 billion:
MHA: $4.0 billion;
HHF: $1.5 billion;
FHASR: $0.
Recognized cost: $5.7 billion;
MHA: $4.2 billion;
HHF: $1.5 billion;
FHASR: $0.
Liability: $0.2 billion;
MHA: $0.2 billion;
HHF: $0;
FHASR: $0.
Estimated lifetime[B] cost: $45.6 billion.
Reported activity through September 2011 by subcomponent (if
applicable):
MHA:
Home Affordable Modification Program (HAMP): 1,090,596 HAMP permanent
modifications.
Home Price Decline Protection Program: 154,383 modifications.
Home Affordable Foreclosure Alternatives (HAFA) Program: 75,423 HAFA
agreements completed.
Second Lien Modification Program (2MP): 96,922 2MP modifications.
Principal Reduction Alternative (PRA): 77,655 PRA permanent
modifications.
Government Loans (FHA and Department of Agriculture Rural Housing
Service HAMP (RD HAMP) loan modifications: 9,089 FHA-HAMP
modifications, 7 RD-HAMP modifications.
Treasury/FHA Second Lien Program (FHA2LP): No activity reported.
HFAHF: 58,519 borrowers assisted.
FHASR: 1,774 FHA loans refinanced.
Source: GAO analysis of Treasury data.
[A] Borrowers have until December 31, 2013, to apply for HAMP. Trial
modifications must be successful for at least 3 months before
borrowers can convert into a permanent modification. Incentives are
paid for up to 5 years after the date a trial modification is
converted to a permanent modification and servicers have several
months to submit loan data for incentive payments. As a result, the
last HAMP incentive payment is likely to occur sometime in 2019.
[B] Treasury's estimated lifetime cost estimates reflect the actual
outlay of funds to the mortgage-related programs and do not use the
same Credit Reform accounting as the other program-specific lifetime
cost estimates.
[End of figure]
In addition to the MHA program, Treasury has allocated $7.6 billion in
TARP funds for HHF, which seeks to help homeowners in 18 states hit
hardest by unemployment and house price declines (Alabama, Arizona,
California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan,
Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode
Island, South Carolina, and Tennessee) plus the District of Columbia.
States were chosen because they had experienced steep home price
declines, high levels of unemployment in the economic downturn, or
both. According to Treasury, each state housing agency gathered public
input to implement programs designed to meet the distinct challenges
homeowners in their state were facing. As a result, HHF programs vary
across states, but services offered often include mortgage payment
assistance for unemployed homeowners and reinstatement assistance to
cover arrearages (e.g., one-time payment to bring a borrower's
delinquent mortgage current).[Footnote 42] Treasury reported that it
had disbursed approximately $1.5 billion to the states for the HHF
program as of September 2012. States reported having spent about $742
million through September 2012 to help more than 77,000 homeowners
since the program began, and $199 million on administrative expenses.
Treasury has also allocated $8.1 billion in TARP funds to the FHA
Short Refinance program to enable homeowners whose mortgages exceed
the value of their homes to refinance into more affordable mortgages.
This opportunity allows borrowers who are current on their mortgage--
or if they are delinquent, who successfully complete a trial period--
to qualify for an FHA Short Refinance loan if the lender or investor
writes off the unpaid principal balance of the original first lien
mortgage by at least 10 percent. Treasury entered into a letter of
credit facility with Citibank in order to fund up to $8 billion of any
losses associated with providing FHA Short Refinance loans. Treasury's
commitment extends until September 2020, and to the extent that FHA
experiences losses on those refinanced mortgage loans, Treasury will
pay claims up to the predetermined percentage after FHA has paid its
portion of the claim. Treasury will also pay a fee to the issuer of
the letter of credit based on the amount of funds drawn against the
letter of credit and any unused amount. The terms of the agreement cap
the fee at $117 million. As of September 30, 2012, FHA had insured
1,774 loans with a total face value of $307 million under the
refinance program. As of September 30, 2012, Treasury had paid about
$7.2 million in fees to Citibank, which issued the letter of credit.
Treasury also placed $50 million in a reserve account to cover any
future loss claims on these loans, although no funds have been
disbursed for loss claim payments.
Treasury Has Identified Both Implementation Challenges and
Improvements in Processes Aimed at Enhancing Borrower Assistance:
Through its monitoring of processes put in place to improve servicers'
communication with borrowers and resolution of disputes, Treasury has
identified some implementation challenges but has also found
improvements in performance. One process, which Treasury announced in
May 2011, requires large servicers participating in HAMP to identify a
"relationship manager" to serve as the borrower's single point of
contact throughout the delinquency or imminent default resolution
process, effective September 1, 2011.[Footnote 43] By implementing
this requirement, called the single point of contact requirement,
Treasury was seeking to enhance communications between servicers and
borrowers during the delinquency resolution process.[Footnote 44] To
monitor servicers' implementation of the single point of contact
requirement, Treasury adopted compliance review procedures to
determine whether servicers (1) had established a single point of
contact in accordance with MHA requirements, (2) were monitoring
assignments and activities to verify that they were in accordance with
internal policies and MHA guidance, and (3) had created written
notices of assignments or changes and sent accurate, timely
information on them to borrowers. Following the effective date of
Treasury's requirement, Treasury's compliance agent, MHA-C, used these
procedures to assess servicers' implementation of the single point of
contact requirement during dedicated compliance reviews, according to
Treasury.
These initial reviews revealed some initial challenges with
implementing the requirement, including delays in assigning
relationship managers to borrowers and poor communication of
assignments and reassignments. Servicers' performance was reflected in
the qualitative measures of internal controls included in the servicer
assessments that Treasury publishes quarterly, according to Treasury.
The reviews also identified areas in which the servicers differed in
their implementation of the requirements, such as the precise timing
of the assignment of relationship managers. Treasury officials said
that servicers have many options for appropriately implementing the
requirement, given the flexibility provided in its guidance, and noted
that servicers were making progress in addressing the issues
identified in the initial compliance reviews. However, Treasury
officials also stated that they were considering whether to issue
additional guidance to clarify the requirements and to help ensure
greater consistency across servicers.
Treasury put in place another process aimed at enhancing borrower
assistance: a case escalation process for resolving borrower inquiries
and disputes. In June 2010, we reported that it was unclear whether
the process that Treasury had established for resolving concerns about
HAMP eligibility determinations was effective. The escalation process
in place at that time lacked standard requirements for complaint
tracking, and Treasury had not clearly communicated the availability
of the escalation process through the HOPE Hotline to the borrower.
[Footnote 45] In November 2010, Treasury announced requirements for
servicers to adopt a standard process for resolving certain borrower
MHA disputes--called escalated cases--effective February 1, 2011.
Treasury now requires that servicers have procedures and personnel in
place to provide timely and appropriate responses to escalated cases.
Escalated cases include but are not limited to:
* allegations that the servicer did not assess the borrower for the
applicable MHA program(s) according to program guidelines;
* inquiries regarding inappropriate program denials or the content of
a nonapproval notice; and:
* disputes or inquiries about the initiation or continuance of a
foreclosure action in violation of program guidelines.
In addition, MHA Help and the HAMP Solution Center (collectively
referred to as the MHA support centers) can refer escalated cases to
the servicer on behalf of either borrowers or third parties assisting
borrowers. MHA Help, which is a team of specialists dedicated
exclusively to working with borrowers and servicers to resolve
escalated MHA cases, receives cases from borrowers who call the HOPE
Hotline. A third party, such as a housing counselor, may escalate a
case through the HAMP Solution Center.
In its capacity as the MHA program administrator, Fannie Mae staffs
the HAMP Solution Center and oversees vendors that staff MHA Help and
the HOPE Hotline, according to Treasury. In order to resolve a case
escalated through these support centers, the servicer must obtain the
concurrence of the center that escalated the case with the proposed
resolution. If the case cannot be resolved at the support center, it
is forwarded to Treasury, which works with the servicer to resolve the
issue:
Treasury has adopted procedures to monitor the performance of
servicers and borrower support centers in resolving escalated cases.
Treasury currently publicly reports on one servicer performance
measure related to escalations: the average number of days required to
resolve escalated cases involving loans not owned or guaranteed by
Fannie Mae or Freddie Mac. Treasury established a target of 30
calendar days or fewer (including processing time by the support
center). In the most recent two quarters for which data were available
(the second and third quarters of 2012), the nine largest MHA
servicers achieved that target. In the two prior quarters, one of
these servicers did not achieve the target.
In addition to reporting on the timeliness of the escalation process,
Treasury conducts other reviews to monitor the program administrator's
management of its vendors and the outcomes of the process. The program
administrator prepares weekly and monthly performance reports for the
HOPE Hotline and the MHA support centers. These reports include case
escalation information for the larger MHA servicers. Treasury
officials in the Office of Financial Agents and the Homeownership
Preservation Office review these reports with the program
administrator and, as necessary, its vendors. In addition, Treasury
reviews a sample of escalated case files monthly to ensure that staff
at the support centers are providing the services Treasury expects of
them. Staff from the Homeownership Preservation Office score the
files--five from each support center--on seven criteria that indicate
whether:
* the resolution template was properly completed;
* the full course of the resolution could be easily identified and
understood;
* the case was resolved according to the escalation case process;
* MHA policy and guidance were appropriately applied;
* engagement with the servicer led to timely closure of the case;
* reasonable efforts had been made to reach the requestor and resolve
the inquiry; and:
* the support center representative demonstrated homeowner advocacy.
Treasury began scoring escalated case files in January 2012, and
according to documents Treasury provided to us, the support centers'
scores improved substantially between January 2012 and June 2012.
Treasury officials said that they had provided training for staff of
the support centers to serve as advocates for homeowners and had
provided additional training for this purpose. The most notable
improvement in the support centers' scores was in the area of
demonstrating homeowner advocacy. Treasury's continued attention to
resolutions of escalated cases and the performance of the support
centers and servicers is instrumental in helping to ensure that
eligible borrowers receive appropriate assistance.
Agency Comments and Our Evaluation:
We provided a draft of this report to Treasury for its review and
comment. In its written comments, reproduced in appendix IV, Treasury
generally concurred with our findings. We also provided relevant
portions of the draft report to Ally Financial and General Motors to
verify the factual information they provided about their companies and
business trends. Treasury, Ally Financial, and General Motors provided
technical comments that we have incorporated as appropriate.
We are sending copies of this report to the Financial Stability
Oversight Board, Special Inspector General for TARP, interested
congressional committees and members, and Treasury. The report also is
available at no charge on the GAO website at [hyperlink,
http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact A. Nicole Clowers at (202) 512-8678 or clowersa@gao.gov for
questions about non-mortgage-related TARP programs, or Mathew Scire at
(202) 512-8678 or sciremj@gao.gov for questions about mortgage-related
TARP programs. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. GAO staff who made major contributions to this report are
listed in appendix V.
Signed by:
Thomas J. McCool:
Director:
Center for Economics, Applied Research and Methods:
List of Addressees:
The Honorable Barbara Mikulski:
Chairman:
The Honorable Thad Cochran:
Vice Chairman Committee on Appropriations:
United States Senate:
The Honorable Tim Johnson:
Chairman:
The Honorable Richard C. Shelby:
Ranking Member Committee on Banking, Housing, and Urban Affairs:
United States Senate:
The Honorable
Chairman:
The Honorable Jeff Sessions:
Ranking Member:
Committee on the Budget:
United States Senate:
The Honorable Max Baucus:
Chairman:
The Honorable Orrin G. Hatch:
Ranking Member:
Committee on Finance:
United States Senate:
The Honorable Hal Rogers:
Chairman:
The Honorable Nita Lowey:
Ranking Member:
Committee on Appropriations:
House of Representatives:
The Honorable Paul Ryan:
Chairman:
The Honorable Chris Van Hollen:
Ranking Member:
Committee on the Budget:
House of Representatives:
The Honorable Jeb Hensarling:
Chairman:
The Honorable Maxine Waters:
Ranking Member:
Committee on Financial Services:
House of Representatives:
The Honorable Dave Camp:
Chairman:
The Honorable Sandy Levin:
Ranking Member:
Committee on Ways and Means:
House of Representatives:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The objectives in this report were to examine the condition and status
of (1) nonmortgage-related Troubled Asset Relief Programs (TARP)
programs and (2) TARP mortgage programs, including Treasury's efforts
to ensure that servicers are implementing two new requirements.
To assess the condition and status of all the nonmortgage-related
programs initiated under the TARP, we collected and analyzed data
about program utilization and assets held, as applicable, focusing
primarily on financial information that we had audited in the Office
of Financial Stability's (OFS) financial statements, as of September
30, 2012. In some instances we provided more recent, unaudited
financial information. The financial information includes the types of
assets held in the program, obligations that represent the highest
amount ever obligated for a program (to provide historical information
on total obligations), disbursements, and income. We also provide
information on program start dates, defining them based on the start
of the first activity under a program, and we provide program end
dates, based on official announcements or program terms from the
Department of the Treasury (Treasury). Finally, we provide approximate
program exit dates--either estimated by Treasury or actual if the exit
already occurred--that reflect the time when a program will no longer
hold assets that need to be managed. We also used OFS cost estimates
for TARP that we audited as part of the financial statement audit. In
addition, we tested OFS's internal controls over financial reporting
as they relate to our annual audit of OFS's financial statements. The
financial information used in this report is sufficiently reliable to
assess the condition and status of TARP programs based on the results
of our audits of fiscal years 2009, 2010, 2011, and 2012 financial
statements for TARP.[Footnote 46]
Further, we reviewed Treasury documentation such as program terms,
press releases, and reports on TARP programs and costs. Also, we
interviewed OFS program officials to determine the current status of
each TARP program, the role of TARP staff while most programs continue
to unwind, and to update what is known about exit considerations for
TARP programs. Other TARP officials we interviewed included those
responsible for financial reporting. Additionally, in reporting on
these programs and their exit considerations we leveraged our previous
TARP reports and publications from the Special Inspector General for
TARP, as appropriate. In addition, we did the following:
* For the Capital Purchase Program, we used OFS's reports to describe
the status of the program, including the amount of investments
outstanding, the number of institutions that had exited the program,
and the amount of dividends paid. In addition, we reviewed Treasury's
press releases on the program and interviewed officials from Treasury.
* For the Community Development Capital Initiative, we interviewed
program officials to determine what exit concerns Treasury has for the
program.
* To update the status of the Automotive Industry Financing Program
and Treasury's plans for managing its investment in the companies, we
leveraged our past work and reviewed information on Treasury's plans
for overseeing its remaining financial interests in General Motors
(GM) and Ally Financial, including Treasury reports. To obtain
information on the current financial condition of the companies, we
reviewed information on GM's and Ally Financial's finances and
operations, including financial statements and industry analysts'
reports. We also interviewed officials from Treasury.
* To update the status of the American International Group, Inc. (AIG)
Investment Program (formerly the Systemically Significant Failing
Institutions Program), we reviewed relevant documents from Treasury
and other parties. For the AIG Investment Program, these documents
included Emergency Economic Stabilization Act of 2008 (EESA) monthly
105(a) reports provided periodically to Congress by Treasury, public
information made available by the Federal Reserve Bank of New York,
and other relevant documentation such as AIG's financial disclosures
and Treasury's press releases. We also interviewed officials from
Treasury.
* For the Term Asset-Backed Securities Loan Facility (TALF), we
reviewed program terms and requested data from Treasury about loan
prepayments and TALF LLC activity. Additionally, we interviewed OFS
officials about their role in the program as it continues to unwind.
* To update the status of the Public-Private Investment Program, we
analyzed program quarterly reports, term sheets, and other
documentation related to the public-private investment funds. We also
interviewed OFS staff responsible for the program to determine the
status of the program while it remains in active investment status.
* To obtain the final status for Small Business Administration (SBA)
7(a) Securities Purchase Program that Treasury exited and for which
Treasury no longer holds assets that it must manage, we reviewed
Treasury's recent reports and leveraged our past work.
To assess the status of TARP-funded mortgage programs and Treasury's
efforts to ensure servicers are implementing the Making Home
Affordable (MHA) single point of contact and resolution of escalated
cases requirements, we reviewed Treasury reports, guidance, and
documentation and interviewed Treasury officials. Specifically, to
determine the status of Treasury's TARP-funded housing programs, we
obtained and reviewed Treasury's published reports on the programs and
servicer performance, as well as guidelines and related updates issued
by Treasury for each of the programs. In addition, we obtained
information from and interviewed Treasury officials about the status
of the TARP-funded mortgage programs, including the actions Treasury
had taken to address our prior recommendations. To assess the status
of Treasury's efforts to ensure servicers are implementing the MHA
single point of contact requirement, we reviewed Treasury's compliance
review procedures and review findings related to single point of
contact for several of the largest MHA servicers. To assess Treasury's
oversight of the escalated case resolution process, we obtained
documentation from Treasury of its process for monitoring the MHA
borrower support centers--MHA Help and the Home Affordable
Modification Program (HAMP) Solution Center--and reviewed monthly
performance reports. We also interviewed Treasury officials about
their oversight of the single point of contact requirement and case
escalation process.
We conducted this performance audit from September 2012 to January
2013 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Treasury's Termination of the TARP Small Business
Administration 7(a) Securities Purchase Program:
The SBA 7(a) Securities Purchase Program was launched as part of TARP
to help facilitate the recovery of the secondary market for small
business loans. Under this program, Treasury purchased securities that
comprised the guaranteed portion of SBA 7(a) loans.
These loans finance a wide range of small business needs, including
working capital, machinery, equipment, furniture, and fixtures.
Treasury originally invested $367 million in 31 SBA 7(a) securities
between March and September 2010. These securities comprised more than
1,000 loans from 17 different industries, including retail, food
services, manufacturing, scientific and technical services, health
care, and educational services. Since Treasury began its purchases,
the SBA 7(a) market has recovered with new SBA 7(a) loan volumes
returning to precrisis levels.
Treasury sold its eight remaining securities in the portfolio for
approximately $63.2 million in proceeds on January 24, 2012. That sale
marked the wind down of this TARP program. In total, Treasury
recovered $376 million through sales ($334 million) and principal and
interest payments ($42 million) over the life of the SBA 7(a)
Securities Purchase Program. After considering Treasury's cost of
financing, the SBA 7(a) Securities Purchase Program resulted in an
income of approximately $4 million to taxpayers on Treasury's original
investment of $367 million (see figure 12).
Figure 12: Status of SBA 7(a) Securities Purchase Program, as of
September 30, 2012:
[Refer to PDF for image: illustrated table]
SBA 7(a) Securities Purchase Program:
Assets held:
Securities backed by SBA 7(a) guaranteed loans.
Start date: March 2010[A];
End date: September 2010[B];
Approximate exit: January 2012.
Status of funding:
Highest ever obligated: $0.38 billion;
Disbursed: $0.37 billion;
Repayments: $0.37 billion;
Outstanding investments: $0.
Income:
Interest income: $0.01 billion;
Proceeds in excess of cost: -$0.004 billion;
Total income: $0.01 billion.
Net estimated value of outstanding investments: $0.
Estimated lifetime income: $4 billion.
Exit considerations:
* Not applicable.
Source: GAO analysis of Treasury data.
Note: This figure represents financial information as of September 30,
2012.
[A] The program's first activity was in March 2010, although it was
first announced in March 2009.
[B] The program's funding ended in September 2010, though some
purchases that were previously committed to prior to September were
fulfilled after that date.
[End of figure]
[End of section]
Appendix III: Treasury's Office of Financial Stability Staffing and
Use of Private Sector Contracting:
Office of Financial Stability Staffing:
As we noted in our 2012 annual TARP report, Treasury has addressed
several staffing challenges that we had previously identified, and the
overall staffing numbers, which began to decline in 2011, continued to
decrease through September 30, 2012 (see figure 13).[Footnote 47]
Treasury's Office of Financial Stability (OFS) used employees
(including term employees) and detailees from other Treasury offices
and other federal agencies to meet its workload requirements.
Figure 13: OFS Employees and Detailees, November 21, 2008, through
September 30, 2012:
[Refer to PDF for image: stacked vertical bar graph]
Date: November 21, 2008;
Employees (including term appointments): 5;
Staff detailed to OFS from other areas of Treasury and other federal
agencies: 43;
Total number of employees: 48.
Date: January 26, 2009;
Employees (including term appointments): 38;
Staff detailed to OFS from other areas of Treasury and other federal
agencies: 52;
Total number of employees: 90.
Date: March 16, 2009;
Employees (including term appointments): 77;
Staff detailed to OFS from other areas of Treasury and other federal
agencies: 36;
Total number of employees: 113.
Date: June 8, 2009;
Employees (including term appointments): 137;
Staff detailed to OFS from other areas of Treasury and other federal
agencies: 29;
Total number of employees: 166.
Date: September 15, 2009;
Employees (including term appointments): 184;
Staff detailed to OFS from other areas of Treasury and other federal
agencies: 12;
Total number of employees: 196.
Date: September 25, 2010;
Employees (including term appointments): 216;
Staff detailed to OFS from other areas of Treasury and other federal
agencies: 3;
Total number of employees: 219.
Date: September 30, 2011;
Employees (including term appointments): 190;
Staff detailed to other areas of Treasury and to other federal
agencies: 8;
Total number of employees: 198.
Date: September 30, 2012;
Employees (including term appointments): 150;
Staff detailed to other areas of Treasury and to other federal
agencies: 13;
Total number of employees: 163.
Source: GAO analysis of Treasury data.
[End of figure]
OFS's overall staffing numbers declined from 198 in 2011 to 163 in
2012, but staffing levels within individual OFS offices have
fluctuated according to the resources needed. Many OFS staff were not
replaced because their skill sets were no longer needed; for example,
many staff in the Chief Investment Office were not replaced as the
investment programs wound down.
According to Treasury officials, Treasury evaluates departing staff on
a case-by-case basis to determine whether a vacancy needs to be filled
and whether present staff can cover the departing staff's
responsibilities, and only one new staff person was added in 2012. In
addition, OFS officials stated that OFS had detailed some of its staff
to other Treasury programs, as Treasury had exited several programs
and no longer had assets to manage for them and many of the other TARP
programs were winding down. Treasury officials continue to anticipate
that staffing levels in OFS offices will decrease over time, and some
staff have moved or may relocate to other parts of Treasury or other
federal agencies.
Treasury also has addressed several turnover-related staffing issues.
We previously reported that a number of staff from the OFS leadership
team departed in 2010 and 2011, and in 2013 the terms of two other
leadership team members are scheduled to expire. As we previously
reported, OFS addressed this leadership challenge by replacing the
Assistant Secretary of Financial Stability with OFS's former Chief
Counsel in 2011 and replacing departing OFS leaders with existing OFS
staff members (generally to term positions). We also reported that OFS
had been addressing other staffing issues, including implementation of
its staffing plan.
Contracts and Other Agreements Supporting TARP Administration and
Operations:
Since TARP was established, Treasury has relied on the private sector
to assist OFS with TARP administration and operations. Treasury
engages with private sector firms through financial agency agreements,
contracts, and blanket purchase agreements.[Footnote 48] According to
OFS procedures, financial agency agreements are used for services that
cannot be provided with existing Treasury or contractor resources.
Specifically, Treasury has relied on financial agents for asset
management, transaction structuring, disposition services, custodial
services, and administration and compliance support for the TARP
housing assistance programs. In addition, Treasury uses TARP contracts
for a variety of legal, investment consulting, accounting, and other
services and supplies.
Through September 30, 2012, Treasury had awarded 19 financial agency
agreements, 13 of which remained active, and awarded or used 131
contracts and blanket purchase agreements, of which about 40 percent
remained active.[Footnote 49] As shown in table 3, the obligated value
of the financial agency agreements and contracts totaled more than
$900 million, with most of the funding going for financial agency
agreements. The increase in obligations since 2010 is largely due to
Treasury's reliance on financial agents to support the oversight of
TARP assets and the continued implementation of the housing programs
over the last couple of years. Also, 3 of its financial agency
agreements for transaction structuring and disposition services
remained active.
Table 3: Cumulative Value of Contracts and Financial Agency Agreements
in Support of TARP:
Financial agency agreements:
Obligated value through fiscal year 2010: $327,355,188;
Obligated value through fiscal year 2011: $547,487,042;
Obligated value through fiscal year 2012: $722,512,644.
Contracts:
Obligated value through fiscal year 2010: $108,907,207;
Obligated value through fiscal year 2011: $154,934,812;
Obligated value through fiscal year 2012: $184,892,212.
Totals:
Obligated value through fiscal year 2010: $436,262,395;
Obligated value through fiscal year 2011: $702,421,854;
Obligated value through fiscal year 2012: $907,404,856.
Source: GAO analysis of Treasury data.
[End of table]
The vast majority of the financial agency agreement obligations shown
above (approximately $525 million) are for Federal National Mortgage
Association (Fannie Mae) and Federal Home Loan Mortgage Corporation
(Freddie Mac), which provide administrative and compliance services,
respectively, for the TARP housing programs.[Footnote 50] The two
largest contracts are $35 million with PricewaterhouseCoopers, LLP for
internal control services and $17 million with Cadwalader, Wickersham
& Taft, LLP for legal services. Treasury also has encouraged small and
minority-and women-owned businesses to pursue opportunities for TARP
contracts and financial agency agreements. The majority of these
businesses participating in TARP are subcontractors.
Managing Potential Conflicts of Interest:
Treasury has taken a number of actions since 2008, in part in response
to recommendations we made, to establish a structured system to manage
potential conflicts of interest involving its contractors and
financial agents. The system is based on a regulation Treasury issued
in interim form in 2009 and final form in 2011 that prohibits retained
entities from engaging in activities that create organizational or
personal conflicts of interest without a waiver or mitigation under a
Treasury-approved plan.[Footnote 51] The regulation sets forth
standards to address actual and potential conflicts that may arise,
establishes responsibilities for contractors and financial agents in
preventing conflicts from occurring, and outlines Treasury's process
for reviewing and addressing conflicts.
Treasury has developed and implemented a multifaceted process to
manage and oversee potential conflicts of interest that is managed by
OFS's Office of the Chief Compliance Officer. The process includes
reviewing proposed contracts and financial agency agreements,
approving contractor and financial agent mitigation plans, responding
to conflict-of-interest inquiries from contractors and financial
agents, verifying that contractors and financial agents are regularly
certifying that they are preventing or properly mitigating actual or
potential conflicts of interest, and preparing feedback reports that
provide a snapshot of how each contractor and financial agent is
performing with respect to conflict-of-interest requirements. In
addition, because the monitoring of conflicts of interest is based to
some degree on self-reported information that contractors and
financial agents submit, Treasury began conducting onsite design and
compliance reviews in 2011. These reviews are designed to evaluate the
effectiveness of contractors' and financial agents' internal controls
and procedures for identifying and addressing conflicts of interest.
[End of section]
Appendix IV: Comments from the Department of the Treasury:
Assistant Secretary:
Department of the Treasury:
Washington, D.C.
December 12, 2012:
Thomas J. McCool:
Director, Center for Economics Applied Research and Methods:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. McCool:
Thank you for the opportunity to review your draft report titled
"Treasury Sees Some Returns as It Exits Programs and Continues to Fund
Mortgage Programs" (Draft Report), which was provided to the
Department of the Treasury (Treasury) on November 28, 2012. Treasury
appreciates the efforts of the Government Accountability Office (GAO)
in providing an updated summary of the current condition and status of
the Troubled Asset Relief Program (TARP).
Four years after the establishment of TARP, Treasury has made
substantial progress in withdrawing the extraordinary assistance that
had to be provided during the financial crisis. As Treasury winds down
the TARP investment programs, protecting the taxpayers' interest,
maximizing returns, and exiting as soon as practicable continue to be
our priorities.
With respect to our housing programs, we have taken significant steps
to expand the reach of our programs and strengthen oversight of
servicers. We appreciate the Draft Report's recognition of these
efforts and the positive effect they have had on assisting borrowers.
Treasury's housing programs have directly helped over one million
homeowners avoid foreclosure and have indirectly helped millions more
by setting new standards throughout the mortgage servicing industry.
Treasury values GAO's detailed review of TARP and shares its
underlying objective of continuously improving the program. We look
forward to continuing to work with you and your team as we move
forward.
5incerly,
Signed by:
Timothy G. Massad:
Assistant Secretary for Financial Stability:
[End of section]
Appendix V: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Thomas J. McCool, (202) 512-2642 or mccoolt@gao.gov:
A. Nicole Clowers, (202) 512-8678 or clowersa@gao.gov:
Mathew J. Scire, (202) 512-8678 or sciremj@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Dan Garcia-Diaz; Gary Engel;
and William T. Woods (lead directors); Marcia Carlsen; Lynda Downing;
Harry Medina; Joseph O'Neill; John Oppenheim; Raymond Sendejas; and
Karen Tremba (lead assistant directors); Donald Brown; Emily Chalmers;
Rachel DeMarcus; Sarah Farkas; John Forrester; Christopher Forys;
Jackie Hamilton; Heather Krause; Risto Laboski; Aaron Livernois; John
Lord; Marc Molino; Dragan Matic; and Erin Schoening have made
significant contributions to this report.
[End of section]
Related GAO Products:
Treasury Continues to Implement Its Oversight System for Addressing
TARP Conflicts of Interest. [hyperlink,
http://www.gao.gov/products/GAO-12-984R]. Washington, D.C.:
September 18, 2012.
Troubled Asset Relief Program: Further Actions Needed to Enhance
Assessments and Transparency of Housing Programs. [hyperlink,
http://www.gao.gov/products/GAO-12-783]. Washington, D.C.: July 19,
2012.
Foreclosure Mitigation: Agencies Could Improve Effectiveness of
Federal Efforts with Additional Data Collection and Analysis.
[hyperlink, http://www.gao.gov/products/GAO-12-296]. Washington, D.C.:
June 28, 2012.
Troubled Asset Relief Program: Government's Exposure to AIG Lessens as
Equity Investments Are Sold. [hyperlink,
http://www.gao.gov/products/GAO-12-574]. Washington, D.C.: May 7, 2012.
Capital Purchase Program: Revenues Have Exceeded Investments, but
Concerns about Outstanding Investments Remain. [hyperlink,
http://www.gao.gov/products/GAO-12-301]. Washington, D.C.: March 8,
2012.
Management Report: Improvements Are Needed in Internal Control over
Financial Reporting for the Troubled Asset Relief Program. [hyperlink,
http://www.gao.gov/products/GAO-12-415R]. Washington, D.C.: February
13, 2012.
Troubled Asset Relief Program: As Treasury Continues to Exit Programs,
Opportunities to Enhance Communication on Costs Exist. [hyperlink,
http://www.gao.gov/products/GAO-12-229]. Washington, D.C.: January 9,
2012:
Financial Audit: Office of Financial Stability (Troubled Asset Relief
Program) Fiscal Years 2011 and 2010 Financial Statements. [hyperlink,
http://www.gao.gov/products/GAO-12-169]. Washington, D.C.: November
10, 2011.
Troubled Asset Relief Program: Status of GAO Recommendations to
Treasury. [hyperlink, http://www.gao.gov/products/GAO-11-906R].
Washington, D.C.: September 16, 2011.
Troubled Asset Relief Program: The Government's Exposure to AIG
Following the Company's Recapitalization. [hyperlink,
http://www.gao.gov/products/GAO-11-716]. Washington, D.C.: July 28,
2011.
Troubled Asset Relief Program: Results of Housing Counselors Survey on
Borrowers' Experiences with the Home Affordable Modification Program.
[hyperlink, http://www.gao.gov/products/GAO-11-367R]. Washington,
D.C.: May 26, 2011.
Troubled Asset Relief Program: Survey of Housing Counselors about the
Home Affordable Modification Program, an E-supplement to [hyperlink,
http://www.gao.gov/products/GAO-11-367R]. [hyperlink,
http://www.gao.gov/products/GAO-11-368SP]. Washington, D.C.: May 26,
2011.
TARP: Treasury's Exit from GM and Chrysler Highlights Competing Goals,
and Results of Support to Auto Communities Are Unclear. [hyperlink,
http://www.gao.gov/products/GAO-11-471]. Washington, D.C.: May 10,
2011.
Management Report: Improvements Are Needed in Internal Control Over
Financial Reporting for the Troubled Asset Relief Program. [hyperlink,
http://www.gao.gov/products/GAO-11-434R]. Washington, D.C.: April 18,
2011.
Troubled Asset Relief Program: Status of Programs and Implementation
of GAO Recommendations. [hyperlink,
http://www.gao.gov/products/GAO-11-476T]. Washington, D.C.: March 17,
2011.
Troubled Asset Relief Program: Treasury Continues to Face
Implementation Challenges and Data Weaknesses in Its Making Home
Affordable Program. [hyperlink,
http://www.gao.gov/products/GAO-11-288]. Washington, D.C.: March 17,
2011.
Troubled Asset Relief Program: Actions Needed by Treasury to Address
Challenges in Implementing Making Home Affordable Programs.
[hyperlink, http://www.gao.gov/products/GAO-11-338T]. Washington,
D.C.: March 2, 2011.
Troubled Asset Relief Program: Third Quarter 2010 Update of Government
Assistance Provided to AIG and Description of Recent Execution of
Recapitalization Plan. [hyperlink,
http://www.gao.gov/products/GAO-11-46]. Washington, D.C.: January 20,
2011.
Troubled Asset Relief Program: Status of Programs and Implementation
of GAO Recommendations. [hyperlink,
http://www.gao.gov/products/GAO-11-74]. Washington, D.C.: January 12,
2011.
Financial Audit: Office of Financial Stability (Troubled Asset Relief
Program) Fiscal Years 2010 and 2009 Financial Statements. [hyperlink,
http://www.gao.gov/products/GAO-11-174]. Washington, D.C.: November
15, 2010.
Troubled Asset Relief Program: Opportunities Exist to Apply Lessons
Learned from the Capital Purchase Program to Similarly Designed
Programs and to Improve the Repayment Process. [hyperlink,
http://www.gao.gov/products/GAO-11-47]. Washington, D.C.: October 4,
2010.
Troubled Asset Relief Program: Bank Stress Test Offers Lessons as
Regulators Take Further Actions to Strengthen Supervisory Oversight.
[hyperlink, http://www.gao.gov/products/GAO-10-861]. Washington, D.C.:
September 29, 2010.
Financial Assistance: Ongoing Challenges and Guiding Principles
Related to Government Assistance for Private Sector Companies.
[hyperlink, http://www.gao.gov/products/GAO-10-719]. Washington, D.C.:
August 3, 2010.
Troubled Asset Relief Program: Continued Attention Needed to Ensure
the Transparency and Accountability of Ongoing Programs. [hyperlink,
http://www.gao.gov/products/GAO-10-933T]. Washington, D.C.: July 21,
2010.
Management Report: Improvements are Needed in Internal Control Over
Financial Reporting for the Troubled Asset Relief Program. [hyperlink,
http://www.gao.gov/products/GAO-10-743R]. Washington, D.C.: June 30,
2010.
Troubled Asset Relief Program: Treasury's Framework for Deciding to
Extend TARP Was Sufficient, but Could be Strengthened for Future
Decisions. [hyperlink, http://www.gao.gov/products/GAO-10-531].
Washington, D.C.: June 30, 2010.
Troubled Asset Relief Program: Further Actions Needed to Fully and
Equitably Implement Foreclosure Mitigation Programs. [hyperlink,
http://www.gao.gov/products/GAO-10-634]. Washington, D.C.: June 24,
2010.
Debt Management: Treasury Was Able to Fund Economic Stabilization and
Recovery Expenditures in a Short Period of Time, but Debt Management
Challenges Remain. [hyperlink,
http://www.gao.gov/products/GAO-10-498]. Washington, D.C.: May 18,
2010.
Troubled Asset Relief Program: Update of Government Assistance
Provided to AIG. [hyperlink, http://www.gao.gov/products/GAO-10-475].
Washington, D.C.: April 27, 2010.
Troubled Asset Relief Program: Automaker Pension Funding and Multiple
Federal Roles Pose Challenges for the Future. [hyperlink,
http://www.gao.gov/products/GAO-10-492]. Washington, D.C.: April 6,
2010.
Troubled Asset Relief Program: Home Affordable Modification Program
Continues to Face Implementation Challenges. [hyperlink,
http://www.gao.gov/products/GAO-10-556T]. Washington, D.C.: March 25,
2010.
Troubled Asset Relief Program: Treasury Needs to Strengthen Its
Decision-Making Process on the Term Asset-Backed Securities Loan
Facility. [hyperlink, http://www.gao.gov/products/GAO-10-25].
Washington, D.C.: February 5, 2010.
Troubled Asset Relief Program: The U.S. Government Role as Shareholder
in AIG, Citigroup, Chrysler, and General Motors and Preliminary Views
on its Investment Management Activities. [hyperlink,
http://www.gao.gov/products/GAO-10-325T]. Washington, D.C.: December
16, 2009.
Financial Audit: Office of Financial Stability (Troubled Asset Relief
Program) Fiscal Year 2009 Financial Statements. [hyperlink,
http://www.gao.gov/products/GAO-10-301]. Washington, D.C.: December 9,
2009.
Troubled Asset Relief Program: Continued Stewardship Needed as
Treasury Develops Strategies for Monitoring and Divesting Financial
Interests in Chrysler and GM. [hyperlink,
http://www.gao.gov/products/GAO-10-151]. Washington, D.C.: November 2,
2009.
Troubled Asset Relief Program: Capital Purchase Program Transactions
for October 28, 2008, through September 25, 2009, and Information on
Financial Agency Agreements, Contracts, Blanket Purchase Agreements,
and Interagency Agreements Awarded as of September 18, 2009.
[hyperlink, http://www.gao.gov/products/GAO-10-24SP]. Washington,
D.C.: October 8, 2009.
Troubled Asset Relief Program: One Year Later, Actions Are Needed to
Address Remaining Transparency and Accountability Challenges.
[hyperlink, http://www.gao.gov/products/GAO-10-16]. Washington, D.C.:
October 8, 2009.
Debt Management: Treasury Inflation Protected Securities Should Play a
Heightened Role in Addressing Debt Management Challenges. [hyperlink,
http://www.gao.gov/products/GAO-09-932]. Washington, D.C.: September
29, 2009.
Troubled Asset Relief Program: Status of Efforts to Address
Transparency and Accountability Issues. [hyperlink,
http://www.gao.gov/products/GAO-09-1048T]. Washington, D.C.: September
24, 2009.
Troubled Asset Relief Program: Status of Government Assistance
Provided to AIG. [hyperlink, http://www.gao.gov/products/GAO-09-975].
Washington, D.C.: September 21, 2009.
Troubled Asset Relief Program: Treasury Actions Needed to Make the
Home Affordable Modification Program More Transparent and Accountable.
[hyperlink, http://www.gao.gov/products/GAO-09-837]. Washington, D.C.:
July 23, 2009.
Troubled Asset Relief Program: Status of Efforts to Address
Transparency and Accountability Issues. [hyperlink,
http://www.gao.gov/products/GAO-09-920T]. Washington, D.C.: July 22,
2009.
Troubled Asset Relief Program: Status of Participants' Dividend
Payments and Repurchases of Preferred Stock and Warrants. [hyperlink,
http://www.gao.gov/products/GAO-09-889T]. Washington, D.C.: July 9,
2009.
Troubled Asset Relief Program: Capital Purchase Program Transactions
for October 28, 2008, through May 29, 2009, and Information on
Financial Agency Agreements, Contracts, Blanket Purchase Agreements,
and Interagency Agreements Awarded as of June 1, 2009. [hyperlink,
http://www.gao.gov/products/GAO-09-707SP]. Washington, D.C.: June 17,
2009.
Troubled Asset Relief Program: June 2009 Status of Efforts to Address
Transparency and Accountability Issues. [hyperlink,
http://www.gao.gov/products/GAO-09-658]. Washington, D.C.: June 17,
2009.
Auto Industry: Summary of Government Efforts and Automakers'
Restructuring to Date. [hyperlink,
http://www.gao.gov/products/GAO-09-553]. Washington, D.C.: April 23,
2009.
Troubled Asset Relief Program: March 2009 Status of Efforts to Address
Transparency and Accountability Issues. [hyperlink,
http://www.gao.gov/products/GAO-09-504]. Washington, D.C.: March 31,
2009.
Troubled Asset Relief Program: Capital Purchase Program Transactions
for the Period October 28, 2008 through March 20, 2009 and Information
on Financial Agency Agreements, Contracts, and Blanket Purchase
Agreements Awarded as of March 13, 2009. [hyperlink,
http://www.gao.gov/products/GAO-09-522SP]. Washington, D.C.: March 31,
2009.
Troubled Asset Relief Program: March 2009 Status of Efforts to Address
Transparency and Accountability Issues. [hyperlink,
http://www.gao.gov/products/GAO-09-539T]. Washington, D.C.: March 31,
2009.
Troubled Asset Relief Program: Status of Efforts to Address
Transparency and Accountability Issues. [hyperlink,
http://www.gao.gov/products/GAO-09-484T]. Washington, D.C.: March 19,
2009.
Federal Financial Assistance: Preliminary Observations on Assistance
Provided to AIG. [hyperlink, http://www.gao.gov/products/GAO-09-490T].
Washington, D.C.: March 18, 2009.
Troubled Asset Relief Program: Status of Efforts to Address
Transparency and Accountability Issues. [hyperlink,
http://www.gao.gov/products/GAO-09-474T]. Washington, D.C.: March 11,
2009.
Troubled Asset Relief Program: Status of Efforts to Address
Transparency and Accountability Issues. [hyperlink,
http://www.gao.gov/products/GAO-09-417T]. Washington, D.C.: February
24, 2009.
Troubled Asset Relief Program: Status of Efforts to Address
Transparency and Accountability Issues. [hyperlink,
http://www.gao.gov/products/GAO-09-359T]. Washington, D.C.: February
5, 2009.
Troubled Asset Relief Program: Status of Efforts to Address
Transparency and Accountability Issues. [hyperlink,
http://www.gao.gov/products/GAO-09-296]. Washington, D.C.: January 30,
2009.
Troubled Asset Relief Program: Additional Actions Needed to Better
Ensure Integrity, Accountability, and Transparency. [hyperlink,
http://www.gao.gov/products/GAO-09-266T]. Washington, D.C.: December
10, 2008.
Auto Industry: A Framework for Considering Federal Financial
Assistance. [hyperlink, http://www.gao.gov/products/GAO-09-247T].
Washington, D.C.: December 5, 2008.
Auto Industry: A Framework for Considering Federal Financial
Assistance. [hyperlink, http://www.gao.gov/products/GAO-09-242T].
Washington, D.C.: December 4, 2008.
Troubled Asset Relief Program: Status of Efforts to Address Defaults
and Foreclosures on Home Mortgages. [hyperlink,
http://www.gao.gov/products/GAO-09-231T]. Washington, D.C.: December
4, 2008.
Troubled Asset Relief Program: Additional Actions Needed to Better
Ensure Integrity, Accountability, and Transparency. [hyperlink,
http://www.gao.gov/products/GAO-09-161]. Washington, D.C.: December 2,
2008.
[End of section]
Footnotes:
[1] EESA, Pub. L. No. 110-343, 122 Stat. 3765 (2008) (codified at 12
U.S.C. §§ 5201 et seq.). EESA originally authorized Treasury to
purchase or guarantee up to $700 billion in troubled assets. The
Helping Families Save Their Homes Act of 2009, Pub. L. No. 111-22,
Div. A, 123 Stat. 1632 (2009), amended EESA to reduce the maximum
allowable amount of outstanding troubled assets under EESA by almost
$1.3 billion, from $700 billion to $698.741 billion.
[2] The Dodd-Frank Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010),
(1) reduced Treasury's authority to purchase or insure troubled assets
to a maximum of $475 billion and (2) prohibited Treasury, under EESA,
from incurring any additional obligations for a program or initiative
unless the program or initiative had already been initiated prior to
June 25, 2010.
[3] The Department of the Treasury, the Congressional Budget Office,
and the Office of Management and Budget provided cost estimates that
were all below $700 billion; the highest estimate was about half the
$700 billion allocated for TARP.
[4] We have issued 60-day TARP reports as required by EESA section 116
(codified at 12 U.S.C. § 5226). These reports may be found at
[hyperlink, http://www.gao.gov].
[5] We provided non-audited financial information for significant
repayments occurring after September 30, 2012. This included
information related to the American International Group (AIG)
Investment Program, the Automotive Industry Financing Program (AIFP),
and the Public-Private Investment Program (PPIP). In the first case,
Treasury has recouped its assistance to AIG, and in case of AIFP, the
updates relate directly to Treasury's exit strategy. We added
information for PPIP because the payment amounts were relatively
large. Our future reports on TARP will address audited financial
information for the various nonmortgage TARP programs for the post-
September 30, 2012, period.
[6] For more information on these programs, see our previous reports
on TARP issued after each of its first 3 years of implementation: GAO,
Troubled Asset Relief Program: As Treasury Continues to Exit Programs,
Opportunities to Enhance Communication on Costs Exist, [hyperlink,
http://www.gao.gov/products/GAO-12-229] (Washington, D.C.: Jan. 9,
2012), Troubled Asset Relief Program: Status of GAO Recommendations to
Treasury, [hyperlink, http://www.gao.gov/products/GAO-11-906R]
(Washington, D.C.: Sept. 16, 2011), Troubled Asset Relief Program:
Status of Programs and Implementation of GAO Recommendations,
[hyperlink, http://www.gao.gov/products/GAO-11-74] (Washington, D.C.:
Jan. 12, 2011), and Troubled Asset Relief Program: One Year Later,
Actions Are Needed to Address Remaining Transparency and
Accountability Challenges, [hyperlink,
http://www.gao.gov/products/GAO-10-16] (Washington, D.C.: Oct. 8,
2009).
[7] In addition to programs that are moving towards exit, the Asset
Guarantee Program, the Capital Assessment Program, the Targeted
Investment Program, and the SBA 7(a) Securities Purchase Program are
no longer active, and Treasury no longer holds assets related to these
programs that it must manage. We have previously reported on programs
that ended in 2012 (see appendix II). The Asset Guarantee Program,
which provided federal government assurances for assets held by
financial institutions deemed critical to the functioning of the U.S.
financial system, still had a receivable outstanding from the Federal
Deposit Insurance Corporation (FDIC) as of September 30, 2012, that
could affect the overall cost of TARP.
[8] See GAO, TARP: Treasury's Exit from GM and Chrysler Highlights
Competing Goals, and Results of Support to Auto Communities Are
Unclear, [hyperlink, http://www.gao.gov/products/GAO-11-471]
(Washington, D.C.: May 10, 2011). The Congressional Oversight Panel
also noted these competing goals. See Congressional Oversight Panel,
January Oversight Report: Exiting TARP and Unwinding Its Impact on the
Financial Markets (Washington, D.C.: Jan. 14, 2010).
[9] Note that some numbers in our program figures will not total due
to rounding.
[10] See [hyperlink, http://www.gao.gov/products/GAO-11-74]. We also
reported on CPP in Troubled Asset Relief Program: Opportunities Exist
to Apply Lessons Learned from the Capital Purchase Program to
Similarly Designed Programs and to Improve the Repayment Process,
[hyperlink, http://www.gao.gov/products/GAO-11-47] (Washington, D.C.:
Oct. 4, 2010) and Capital Purchase Program: Revenues Have Exceeded
Investments, but Concerns about Outstanding Investments Remain,
[hyperlink, http://www.gao.gov/products/GAO-12-301] (Washington, D.C.:
Mar. 8, 2012).
[11] Throughout this report we use "lifetime income" to refer to
instances when cost estimates suggest that certain TARP programs could
result in net income for the taxpayer because the proceeds from
Treasury's investments (e.g., repayments, dividends, and interest
payments) are expected to exceed costs.
[12] See Department of the Treasury, Troubled Asset Relief Program
(TARP) Monthly 105(a) Report-September 2012 (Washington, D.C.: Oct.
10, 2012).
[13] Additionally, 16 institutions have made partial repayments but
remain in the program.
[14] CDCI is a TARP program that provides capital to Community
Development Financial Institutions that have a federal depository
institution supervisor. The program structure is similar to CPP but
includes credit unions and provides more favorable capital terms. SBLF
was created by the Small Business Jobs Act of 2010, Pub. L. No. 111-
240, 124 Stat. 2504 (2010), enacted on September 27, 2010. SBLF is a
capital support program that encourages small and midsize banks and
community development loan funds to lend to small businesses.
[15] Under CPP terms, institutions pay cumulative dividends on their
preferred shares, except for banks that are not subsidiaries of
holding companies, which pay noncumulative dividends. Some other types
of institutions, such as S-corporations, received their CPP investment
in the form of subordinated debt and pay Treasury interest rather than
dividends. An S-corporation makes a valid election to be taxed under
subchapter S of chapter 1 of the Internal Revenue Code and thus does
not pay any income taxes. Instead, the corporation's income or losses
are divided among and passed through to its shareholders.
[16] These figures differ from the number of dividend or interest
payments outstanding because some institutions made their payments
after the end of the reporting month. CPP dividend and interest
payments are due on February 15, May 15, August 15, and November 15 of
each year, or the first business day subsequent to those dates. The
reporting period ends on the last day of the calendar month in which
the dividend or interest payment is due. In its dividend and interest
reports, Treasury no longer considers a payment to be missed or unpaid
once the institution (1) repays its investment amount and exits CPP,
(2) repays dividends by way of capitalization at the time of exchange,
or (3) enters bankruptcy or its bank subsidiary is placed into
receivership. We included such institutions in our counts.
[17] Twenty-eight of these institutions previously participated in
CPP. According to Treasury, of this amount, approximately $363 million
from these 28 institutions was exchanged from investments under CPP
into CDCI. Institutions interested in transferring to CDCI from CPP
were required to be (1) current on dividend payments, (2) in good
standing with CPP, and (3) in compliance with all reporting
requirements.
[18] While similar to CPP, CDCI differs from CPP in several important
aspects: (1) CDCI provides financial assistance to CDFIs, which in
turn provide financial services to underserved communities; (2) CDCI
also provides assistance to credit unions, unlike CPP; and (3) CDCI
provides more favorable capital terms to its participants than CPP,
including a longer repayment period at a lower dividend rate. For more
details, see [hyperlink, http://www.gao.gov/products/GAO-11-74].
[19] On December 18, 2012, Treasury announced it would sell 200
million of its remaining GM shares to the company, which would reduce
Treasury's investment to 19 percent. If Treasury converted its
mandatory convertible preferred securities, its common equity in Ally
Financial would increase to 81 percent.
[20] In its third quarter earnings release, GM estimated the adjusted
earnings before interest and tax (EBIT) for its European operations to
be at a loss of $1.5 billion to $1.8 billion for 2012, depending on
the level of restructuring activity in the fourth quarter. The company
is also targeting 2013 to be slightly better than 2012 with break-even
EBIT adjusted results by mid-decade.
[21] See [hyperlink, http://www.gao.gov/products/GAO-11-471].
Additional reporting on AIFP appears in GAO, Troubled Asset Relief
Program: Automaker Pension Funding and Multiple Federal Roles Pose
Challenges for the Future, [hyperlink,
http://www.gao.gov/products/GAO-10-492] (Washington, D.C.: Apr. 6,
2010); Troubled Asset Relief Program: Continued Stewardship Needed as
Treasury Develops Strategies for Monitoring and Divesting Financial
Interests in Chrysler and GM, [hyperlink,
http://www.gao.gov/products/GAO-10-151] (Washington, D.C.: Nov. 2,
2009); and Auto Industry: Summary of Government Efforts and
Automakers' Restructuring to Date, [hyperlink,
http://www.gao.gov/products/GAO-09-553] (Washington, D.C.: Apr. 23,
2009).
[22] On March 31, 2011, Ally Financial filed a registration statement
with the Securities and Exchange Commission for a proposed IPO.
Additionally, Treasury officials have not ruled out the possible sale
of its equity in a private transaction.
[23] In 2012, Ally's net income declined from $310 million in the
first quarter to a loss of $898 million in the second quarter, and
then increased to $384 million in the third quarter. Ally's second
quarter net income included a non-recurring charge of $1.192 billion
related to the Residential Capital, LLC, bankruptcy. Ally officials
noted that the company's core income for the first three quarters of
2012--which excludes the Residential Capital, LLC bankruptcy filing
and reflects the income (loss) from continuing operations before taxes
and primarily bond exchange original issue discount ("OID")
amortization expense--has increased from $1.009 billion in 2011 to
$1.451 billion in 2012.
[24] Specifically, in September 2008, a trust created by FRBNY
received 100,000 shares of Series C preferred stock, and the Treasury
received a 77.9 percent voting interest in AIG, in exchange for an
FRBNY revolving loan. This transaction predated TARP. In November
2008, Treasury used TARP funds to purchase $40 billion in cumulative
preferred shares of Series D stock, which was exchanged in April 2009
for $41.6 billion of Series E noncumulative preferred stock (the
difference of $1.6 billion was in accumulated but unpaid dividends on
the Series D stock). That same month, Treasury used TARP funds to
purchase 300,000 shares of Series F noncumulative preferred stock and
a warrant to purchase up to 3,000 shares of AIG common stock in
exchange for providing AIG with a $29.835 billion equity facility. In
January 2011, AIG was recapitalized, and Treasury exchanged its Series
E and F preferred stock for 1.0921 billion shares of common shares and
a $20.3 billion preferred interest in two special purpose vehicle
subsidiaries of AIG. We refer to these shares as "TARP shares." Also
in January, the trust exchanged its Series C preferred stock for 562.9
million shares of common stock and subsequently transferred these
shares to Treasury. We refer to these shares as "non-TARP shares."
Treasury owned a total of 1.655 billion common shares in AIG or
approximately 92 percent of the company as of January, 2011. For
additional information on the non-TARP assistance provided to AIG see
GAO, Financial Crisis: Review of Federal Reserve System Financial
Assistance to American International Group, Inc., [hyperlink,
http://www.gao.gov/products/GAO-11-616] (Washington, D.C.: Sept. 30,
2011).
[25] See GAO, Troubled Asset Relief Program: The Government's Exposure
to AIG Following the Company's Recapitalization, [hyperlink,
http://www.gao.gov/products/GAO-11-716] (Washington, D.C.: July 18,
2011). As discussed in GAO-11-716, this calculation is based on a cash-
in/cash-out approach and reflects Treasury's primary goal of recouping
taxpayers' costs. It includes only the cost of the liquidation
preferences in the Series E and Series F preferred shares--$47.543
billion--to calculate a breakeven share price of $28.73. Under a
different approach that captures $47.543 billion of liquidation
preferences in Series E and Series F preferred shares, plus $1.605
billion of unpaid dividends and fees (for a total of $49.148 billion),
the breakeven share price would increase to approximately $29.70,
which represents the minimum average price at which Treasury would
need to sell all of its shares to fully recover the $49.148 billion.
Additional AIG reporting includes GAO, Troubled Asset Relief Program:
Third Quarter 2010 Update of Government Assistance Provided to AIG and
Description of Recent Execution of Recapitalization Plan, [hyperlink,
http://www.gao.gov/products/GAO-11-46] (Washington, D.C.: Jan. 20,
2011); Troubled Asset Relief Program: Update of Government Assistance
Provided to AIG, [hyperlink, http://www.gao.gov/products/GAO-10-475]
(Washington, D.C.: Apr. 27, 2010); and Troubled Asset Relief Program:
Status of Government Assistance Provided to AIG, [hyperlink,
http://www.gao.gov/products/GAO-09-975] (Washington, D.C.: Sept. 21,
2009).
[26] See [hyperlink, http://www.gao.gov/products/GAO-12-574] for a
more detailed discussion of FRBNY's assistance to AIG.
[27] Unlike the other lifetime estimates reported here, the lifetime
income estimate of $17.6 billion for Treasury's non-TARP shares has
not been audited by GAO. The estimate was obtained from the Department
of the Treasury, Troubled Asset Relief Program: Monthly Report to
Congress (Washington, D.C.: Nov. 9, 2012).
[28] FRBNY provided loans to certain institutions and business
entities in return for collateral in the form of securities that are
forfeited if the loans are not repaid. Securitization is a process
that aggregates into pools similar debt instruments--such as loans,
leases, or receivables. Interest-bearing securities backed by these
pools are then sold to investors. These ABS provide a source of
liquidity for consumers and small businesses, because financial
institutions can take assets that they would otherwise hold on their
balance sheets, sell them as securities, and use the proceeds to
originate new loans, among other purposes. CMBS are securitizations
with cash flows backed by principal and interest payments on a pool of
loans on commercial properties. For additional information about
securitization and about TALF, see GAO, Federal Reserve System:
Opportunities Exist to Strengthen Policies and Processes for Managing
Emergency Assistance, [hyperlink,
http://www.gao.gov/products/GAO-11-696] (Washington, D.C.: July 21,
2011), and Troubled Asset Relief Program: Treasury Needs to Strengthen
Its Decision-Making Process on the Term Asset-Backed Securities Loan
Facility, [hyperlink, http://www.gao.gov/products/GAO-10-25]
(Washington, D.C.: Feb. 5, 2010).
[29] Initially, Treasury committed to providing as much as $20 billion
in credit protection to FRBNY, but in July 2010, Treasury and the
Federal Reserve agreed to reduce the credit protection to $4.3
billion. In June 2012, they agreed to reduce the credit protection
again, this time to $1.4 billion.
[30] TALF expired on March 31, 2010, for loans backed by ABS and
legacy CMBS, and on June 30, 2010, for loans backed by newly issued
CMBS.
[31] FRBNY established the "haircut" or amount of equity the borrower
holds in TALF collateral based on its weighted average life and market
risks for each sector and subsector. The haircut is also the
difference between the value of the TALF collateral and the value of
the loan. In other words, if haircuts have grown, the borrower has
more equity in the collateral and should be less likely to default on
the loan. See [hyperlink, http://www.gao.gov/products/GAO-10-25] for
more details.
[32] According to Treasury, of the remaining seven PPIFs, one
terminated its investment period in September 2011 and another PPIF
terminated its investment period in July 2012. Investment periods for
four other PPIFs terminated in October 2012 and the remaining one
terminated in November 2012.
[33] PPIFs received an approximately equal share of equity from
Treasury and private investors. PPIFs also received access to credit
from Treasury. PPIFs were able to draw on these funds to invest in
eligible residential mortgage-backed securities and commercial
mortgage-backed securities. According to Treasury officials, approvals
could be given for pending transactions placed prior to the end of the
investment period, for example.
[34] While PPIP is scheduled to end in 2017 (8 years after the last
PPIP was initiated), it could be extended for 2 years. Such decisions
would occur on a case-by-case basis for each PPIF, depending on market
conditions and other factors.
[35] Treasury also refers to FHASR as the FHA-Refinance Program.
[36] Under the FHASR program, if FHA recovers any amount of a claim
payment from a servicer, FHA will remit Treasury's share to Treasury.
[37] HAMP first-lien modifications are available to qualified
borrowers who took out their loans on or before January 1, 2009. Only
single-family properties (one to four units) with mortgages no greater
than $729,750 for a one-unit property are eligible.
[38] We have made a number of recommendations to Treasury regarding
its efforts to implement the MHA program. See GAO, Troubled Asset
Relief Program: Further Actions Needed to Enhance Assessments and
Transparency of Housing Programs, [hyperlink,
http://www.gao.gov/products/GAO-12-783] (Washington, D.C.: July 19,
2012); [hyperlink, http://www.gao.gov/products/GAO-11-288]; Troubled
Asset Relief Program: Further Actions Needed to Fully and Equitably
Implement Foreclosure Mitigation Programs, [hyperlink,
http://www.gao.gov/products/GAO-10-634] (Washington, D.C.: June 24,
2010); and Troubled Asset Relief Program: Treasury Actions Needed to
Make the Home Affordable Modification Program More Transparent and
Accountable, [hyperlink, http://www.gao.gov/products/GAO-09-837]
(Washington, D.C: July 23, 2009). While Treasury has taken various
actions consistent with our recommendations, several of our MHA-
related recommendations remain open. We will be providing a status
report of these recommendations later in 2013.
[39] Under HAMP, borrowers must successfully complete a trial
modification of at least 3 months before receiving a permanent
modification. Totals include HAMP modifications completed by Fannie
Mae and Freddie Mac, which participate in HAMP but do not receive TARP
funding for incentives.
[40] Another Treasury program, the Home Affordable Unemployment
Program, does not entail the use of TARP or other federal program
funds. The Unemployment Program requires servicers participating in
MHA to grant qualified unemployed borrowers a forbearance period for a
minimum of 12 months. During this period, mortgage payments are
temporarily reduced or suspended while borrowers look for new jobs.
Borrowers can apply for a HAMP modification either when they secure
employment or before the forbearance period ends. Treasury reported
that more than 27,000 Unemployment Program forbearance plans had been
started through August 2012.
[41] In order to be eligible for the Second Lien Modification Program,
borrowers' loans must meet certain criteria. For example, the loan
must have been originated on or before January 1, 2009; have an unpaid
balance of greater than $5,000 and a premodification monthly payment
greater than $100; and can be modified only once under the program.
[42] See [hyperlink, http://www.gao.gov/products/GAO-12-783] for an
expanded discussion of the various state programs.
[43] The requirement applies to servicers with program participation
caps of $75,000,000 or more as of May 18, 2011, although all
participating servicers are encouraged to adopt this practice.
Treasury's requirement is similar to a requirement issued by federal
banking regulators as part of consent orders obtained against 14
servicers and by the April 2012 national mortgage settlement agreed to
by state attorneys general, the federal government, and five servicers.
[44] In November 2012, Treasury issued a report entitled, Making
Contact: The Path to Improving Mortgage Industry Communication with
Homeowners, which describes how the largest servicers have implemented
the single point of contact requirement, including the different
customer relationship models servicers are using. The report is
available at [hyperlink, http://www.treasury.gov/initiatives/financial-
stability/reports/Documents/SPOC%20Special%20Report_Final.pdf]
accessed on December 12, 2012.
[45] [hyperlink, http://www.gao.gov/products/GAO-10-634].
[46] See [hyperlink, http://www.gao.gov/products/GAO-13-126R],
[hyperlink, http://www.gao.gov/products/GAO-12-169], [hyperlink,
http://www.gao.gov/products/GAO-11-174], and [hyperlink,
http://www.gao.gov/products/GAO-10-301].
[47] See [hyperlink, http://www.gao.gov/products/GAO-12-229].
[48] A blanket purchase agreement is a method of filling anticipated
repetitive needs for supplies or services through qualified sources of
supply. The agreement contains the basic terms and conditions
governing the types of services the firms will provide. As specific
needs arise, blanket purchase agreements allow Treasury to issue task
orders to the firms describing the specific services required,
establishing time frames, and setting pricing arrangements.
[49] The 131 contracts and blanket purchase agreements include six
contractual arrangements in which OFS is engaging vendors that have
existing contracts with other Treasury offices or bureaus or with
other federal agencies. For more information about Treasury's use of
financial agency agreements and contracts and blanket purchase
agreements, see GAO, Treasury Continues to Implement Its Oversight
System for Addressing TARP Conflicts of Interest, [hyperlink,
http://www.gao.gov/products/GAO-12-984R] (Washington, D.C.: Sept. 18,
2012).
[50] Congress established Fannie Mae and Freddie Mac as government
sponsored entities, chartering them as for-profit, shareholder-owned
corporations to stabilize and assist the U.S. secondary mortgage
market and facilitate the flow of mortgage credit.
[51] 31 C.F.R. Part 31.
[End of section]
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